SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
SPINNAKER EXPLORATION COMPANY
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(I) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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[LOGO] SPINNAKER EXPLORATION
SPINNAKER EXPLORATION COMPANY
Houston, Texas
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 6, 2003
To the Stockholders:
The 2003 Annual Meeting of Stockholders (the "Annual Meeting") of Spinnaker
Exploration Company (the "Company" or "Spinnaker") will be held on Tuesday, May
6, 2003, at 9:00 a.m., local time, at the DoubleTree Hotel at Allen Center, 400
Dallas Street at Bagby, Houston, Texas, for the following purposes:
(1) To elect seven directors to serve until the 2004 Annual Meeting of
Stockholders;
(2) To approve the Spinnaker Exploration Company 2003 Stock Option Plan;
(3) To ratify the selection of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 2003; and
(4) To transact such other business as may properly come before such meeting
or any adjournment(s) thereof.
The close of business on March 14, 2003 has been fixed as the record date
for the determination of stockholders entitled to receive notice of and to vote
at the Annual Meeting or any adjournment(s) thereof.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of
Directors
/s/ Robert M. Snell
Robert M. Snell
Secretary
March 27, 2003
[LOGO] SPINNAKER EXPLORATION
SPINNAKER EXPLORATION COMPANY
1200 Smith Street, Suite 800
Houston, Texas 77002
(713) 759-1770
-----------------
PROXY STATEMENT
-----------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Spinnaker Exploration Company ("Spinnaker" or the "Company") for use at the
Annual Meeting to be held on Tuesday, May 6, 2003, at 9:00 a.m., local time, at
the DoubleTree Hotel at Allen Center, 400 Dallas Street at Bagby, Houston,
Texas or at any adjournment(s) thereof. The solicitation of proxies by the
Board of Directors will be conducted primarily by mail. In addition, officers,
directors and employees of the Company may solicit proxies personally or by
telephone, telegram or other forms of wire or facsimile communication. The
Company will reimburse brokers, custodians, nominees and fiduciaries for
reasonable expenses incurred by them in forwarding proxy material to beneficial
owners of common stock of the Company ("Common Stock"). The Company has
retained Georgeson Shareholder Communications Inc. to assist in the
solicitation of proxies from stockholders of the Company for an anticipated fee
of $8,500, plus out-of-pocket expenses. The costs of the solicitation will be
borne by the Company. This proxy statement and the form of proxy were first
mailed to stockholders of the Company on or about March 28, 2003.
The enclosed proxy, even though executed and returned, may be revoked at any
time prior to the voting of the proxy by (a) execution and submission of a
revised proxy, (b) written notice to the Secretary of the Company or (c) voting
in person at the Annual Meeting. In the absence of such revocation, shares
represented by the proxies will be voted at the Annual Meeting.
At the close of business on March 14, 2003, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were 33,193,944 outstanding shares of Common Stock. Each
stockholder is entitled to one vote for each share of Common Stock. The Common
Stock is the only class of outstanding securities of the Company entitled to
notice of and to vote at the Annual Meeting. In order to transact business at
the Annual Meeting, a quorum consisting of a majority of all outstanding shares
entitled to vote must be present or represented by proxy. Abstentions and
proxies returned by brokerage firms for which no voting instructions have been
received from their principals will be counted for the purpose of determining
whether a quorum is present.
The Company's annual report to stockholders for the year ended December 31,
2002, including financial statements, is being mailed with the enclosed proxy
to all stockholders entitled to vote at the Annual Meeting. The annual report
does not constitute a part of the proxy soliciting material.
1
ELECTION OF DIRECTORS
(Proposal One)
Seven directors are to be elected at the Annual Meeting. The nominees for
election as directors are Roger L. Jarvis, Howard H. Newman, Jeffrey A. Harris,
Michael E. McMahon, Sheldon R. Erikson, Michael G. Morris and Michael E. Wiley.
If elected, each director will serve until the Company's 2004 Annual Meeting of
Stockholders and until his successor shall have been elected and qualified.
Each of the nominees for director currently serves as a director of the
Company. All of the directors are required to stand for election at the Annual
Meeting because directors hold annual terms. The affirmative vote of the
holders of a majority of the Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting is required to elect a director.
Accordingly, abstentions and "broker non-votes" would have the same effect as a
vote against a director. A broker non-vote occurs if a broker or other nominee
does not have discretionary authority and has not received instructions with
respect to a particular item. Stockholders may not cumulate their votes in the
election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual
Meeting, the persons named in the enclosed proxy will vote for the election of
such other person(s) as may be nominated by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF
THE ABOVE NOMINEES.
The following table sets forth information as to each nominee regarding
their name, age as of March 14, 2003, principal occupation, other directorships
in certain companies held by them and the length of their continuous service as
a director of the Company.
Director
Nominees Principal Occupation and Directorships Since Age
-------- -------------------------------------- -------- ---
Roger L. Jarvis... Chairman of the Board, President and Chief Executive Officer of the 1996 49
Company; Director, National-Oilwell, Inc.
Howard H. Newman.. Member and Vice Chairman, Warburg Pincus LLC; Partner, 1996 55
Warburg Pincus & Co.; Director, ADVO, Inc., Cox Insurance
Holdings, Plc, Encore Acquisition Company and Newfield
Exploration Company
Jeffrey A. Harris. Member and Senior Managing Director, Warburg Pincus LLC; 1996 47
Partner, Warburg Pincus & Co.; Director, Knoll, Inc.
Michael E. McMahon Executive Counsel to the Governor of the State of Rhode Island and 1999 55
Providence Plantations on Economic and Community Development;
Executive Director, Rhode Island Economic Development
Corporation
Sheldon R. Erikson Chairman of the Board, President and Chief Executive Officer, 2000 61
Cooper Cameron Corporation; Director, The National Petroleum
Council, American Petroleum Institute, National Association of
Manufacturers and Petroleum Equipment Suppliers Association
Michael G. Morris. Chairman of the Board, President and Chief Executive Officer, 2001 56
Northeast Utilities; Director, Edison Electric Institute, American Gas
Association, Nuclear Electric Insurance Limited, Connecticut
Business & Industry Association, St. Francis Care, Inc. and Webster
Financial Corporation
Michael E. Wiley.. Chairman of the Board, President and Chief Executive Officer, Baker 2001 52
Hughes Incorporated; Director, American Petroleum Institute
2
Each of the nominees has been engaged in the principal occupation set forth
opposite his name for the past five years except as follows:
. Mr. McMahon was a Partner with RockPort Partners LLC from July 1998
through December 2002 and a Managing Director of Chase Securities, Inc.
from July 1997 to June 1998.
. Mr. Wiley was President and Chief Operating Officer of Atlantic Richfield
Company (ARCO) from 1998 through May 2000. Prior to 1998, Mr. Wiley
served as Chairman, President and Chief Executive Officer of Vastar
Resources, Inc.
Directors' Meetings and Committees of the Board of Directors
The Board of Directors held five meetings during 2002 and executed one
unanimous consent in lieu of a meeting. During 2002, each of the directors
attended at least 75 percent of the aggregate of (i) the total number of
meetings of the Board of Directors held during the period that such director
served as a director and (ii) the total number of meetings held by each
committee of the Board of Directors on which such director served during the
period that such director so served. The Board of Directors has the following
standing committees:
Audit Committee. The Audit Committee, which consists of Messrs. McMahon,
Morris and Wiley, met 11 times during 2002. Mr. McMahon serves as Chairman of
the Audit Committee. All current members of the Audit Committee are independent
as defined by the listing standards of the New York Stock Exchange. The Audit
Committee is primarily responsible for:
. overseeing the quality and integrity of the financial statements and
other financial information the Company provides to any governmental body
or the public;
. overseeing the Company's compliance with legal and regulatory
requirements;
. overseeing the independent auditor's qualifications and independence;
. overseeing the performance of the Company's internal audit function and
independent auditors;
. overseeing the Company's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board of
Directors have established;
. providing an open avenue of communication among the independent auditor,
financial and senior management, the internal auditor and the Board of
Directors, always emphasizing that the independent auditor is accountable
to the Audit Committee;
. overseeing the receipt, retention and treatment of complaints regarding
the Company's accounting, internal accounting controls and other
accounting matters; and
. such other duties as are directed by the Board of Directors.
The Audit Committee has performed its annual review and assessment of the
Audit Committee Charter and adopted a revised charter in March 2003. A copy of
the current Audit Committee Charter is attached hereto as Appendix A.
Compensation Committee. The Compensation Committee, which consists of
Messrs. Harris, Erikson and Wiley, met once during 2002. Mr. Harris is the
Chairman of the Compensation Committee. The Compensation Committee is
responsible for:
. administering and granting awards under all equity incentive plans;
3
. reviewing the compensation of the Company's Chief Executive Officer and
recommendations of the Chief Executive Officer as to appropriate
compensation for the other executive officers and key personnel;
. examining periodically the Company's general compensation structure; and
. supervising the Company's welfare and pension plans and compensation
plans.
Nominating/Corporate Governance Committee. The Nominating/Corporate
Governance Committee, which consists of Messrs. Erikson and Morris, was
established in February 2003. Mr. Erikson is the Chairman of the
Nominating/Corporate Governance Committee. The Nominating/Corporate Governance
Committee is responsible for:
. identifying individuals qualified to become members of the Board of
Directors and recommending to the Board of Directors a slate of director
nominees for election at the next annual meeting of stockholders or for
appointment to fill vacancies on the Board of Directors;
. recommending to the Board of Directors director nominees for each
committee of the Board of Directors;
. advising the Board of Directors about appropriate composition of the
Board of Directors and its committees;
. advising the Board of Directors about and recommending to the Board of
Directors appropriate corporate governance practices and assisting the
Board of Directors in implementing those practices;
. leading the Board of Directors' annual review of the performance of the
Board of Directors and its committees; and
. performing such other functions as the Board of Directors may assign to
the committee from time to time.
Risk Management Committee. The Risk Management Committee, which consists of
Messrs. Jarvis, Harris, McMahon and Morris, met four times during 2002. Mr.
Jarvis is the Chairman of the Risk Management Committee. The Risk Management
Committee is responsible for monitoring the hedging program and adherence to
the hedging policy.
Compensation of Directors
Prior to 2001, non-employee directors unaffiliated with Warburg, Pincus
Ventures, L.P. ("Warburg") were granted options pursuant to the Company's
equity incentive plans to purchase 16,000 shares of Common Stock at fair market
value upon appointment to the Board of Directors, with 20% vesting on the date
of grant and 20% vesting on each anniversary of the grant date. These directors
were also awarded a variable number of options to purchase Common Stock at fair
market value annually on the date of previously-held annual meetings of
stockholders, with 100% vesting on the date of grant.
In May 2001, the Board of Directors adopted and approved the Director
Compensation Plan, which includes the following provisions:
. Upon appointment or election to the Board of Directors, each non-employee
director of the Company shall receive options to purchase 20,000 shares
of Common Stock under the terms of one of the Company's equity incentive
plans then in effect with an exercise price equal to the fair market
value of the Common Stock on the date of the grant. Each non-employee
director of the Company unaffiliated with Warburg who received options to
purchase shares of Common Stock prior to the adoption of the Director
Compensation Plan received options to purchase an additional 4,000 shares
of Common Stock. Such additional options to purchase 4,000 shares of
Common Stock vested 20% on the date of the grant and will continue to
vest 20% on each anniversary of the date of the grant.
. Each non-employee director of the Company unaffiliated with Warburg may
select to receive either (i) annual director fees of $24,000 payable in
quarterly installments of $6,000 or (ii) an option to purchase shares of
Common Stock, granted on or about the date of each annual meeting of
stockholders of the
4
Company, equivalent to a payment of $24,000 using the Black-Scholes
option pricing model as of the date of the grant. Such options will be
awarded under the terms of one of the Company's equity incentive plans
then in effect with an exercise price equal to the fair market value of
the Common Stock on the date of the grant. Such options to purchase
shares of Common Stock shall vest 100% on the date of the grant.
. Warburg has requested one allocation of each option grant under the
Director Compensation Plan for the ultimate benefit of Warburg.
. Each non-employee director of the Company unaffiliated with Warburg will
receive a meeting fee of $500. In addition, each non-employee director of
the Company who also serves as a committee chairman will receive an
additional $500 for each committee meeting held outside a regular meeting
of the Board of Directors. Warburg has requested that one allocation of
meeting fees be paid to Mr. Harris for the ultimate benefit of Warburg.
No compensation will be paid for executing a unanimous consent of
directors.
In 2002, the Compensation Committee granted options to directors of the
Company under the Director Compensation Plan to purchase 12,500 shares of
Common Stock as follows:
. 2,500 options to purchase shares of Common Stock to Messrs. Harris,
McMahon, Erikson, Morris and Wiley, respectively, with 100 percent
vesting on the date of grant and an exercise price of $42.06.
Non-employee directors are also reimbursed for out-of-pocket expenses
incurred to attend board and committee meetings.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, unless otherwise
indicated, as of March 14, 2003, regarding beneficial ownership of Common Stock
by (i) each person known by the Company to own beneficially five percent or
more of its outstanding Common Stock, (ii) the Company's Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers, (iii) each director and (iv) all executive officers and directors as
a group.
Beneficial Ownership(3)
----------------------
Name of Beneficial Owner Shares Percent
------------------------ --------- -------
Warburg, Pincus Ventures, L.P. (1) (2).................................... 6,800,585 20.5%
Roger L. Jarvis........................................................... 1,169,490 3.4
Robert M. Snell........................................................... 158,609 *
William D. Hubbard........................................................ 279,923 *
L. Scott Broussard........................................................ 122,194 *
Kelly M. Barnes........................................................... 200,495 *
Howard H. Newman (2)...................................................... 6,807,185 20.5
Jeffrey A. Harris (2)..................................................... 6,809,685 20.5
Michael E. McMahon........................................................ 42,430 *
Sheldon R. Erikson........................................................ 21,000 *
Michael G. Morris......................................................... 15,700 *
Michael E. Wiley.......................................................... 17,700 *
Executive officers and directors as a group (consisting of 13 persons) (2) 8,980,421 25.5
--------
* Represents beneficial ownership of less than one percent.
(1) The stockholder is Warburg. Warburg Pincus & Co. ("WP") is the sole general
partner of Warburg. Warburg is managed by Warburg Pincus LLC ("WP LLC").
Howard H. Newman and Jeffrey A. Harris, directors of Spinnaker, are members
of WP LLC and general partners of WP. Messrs. Newman and Harris may be
deemed to have an indirect pecuniary interest (within
5
the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as
amended) in an indeterminate portion of the shares beneficially owned by
Warburg.
The address of the Warburg Pincus entities is 466 Lexington Avenue, New
York, New York 10017.
(2) Of the total shares indicated as owned by Messrs. Newman and Harris,
6,800,585 shares are included because of their affiliation with the Warburg
Pincus entities. Messrs. Newman and Harris disclaim beneficial ownership of
all shares owned by the Warburg Pincus entities. Their address is c/o
Warburg Pincus LLC, 466 Lexington Avenue, New York, New York 10017. See
Note 1 above.
(3) Pursuant to the rules and regulations promulgated under the Securities
Exchange Act of 1934, shares are deemed to be "beneficially owned" by a
person if he directly or indirectly has or shares the power to vote or
dispose of such shares, whether or not he has any pecuniary interest in
such shares, or if he has the right to acquire the power to vote or dispose
of such shares within 60 days, including any right to acquire such power
through the exercise of any option, warrant or right. The shares
beneficially owned by Messrs. Jarvis, Snell, Hubbard, Broussard, Barnes,
Newman, Harris, McMahon, Erikson, Morris and Wiley include 1,060,023,
158,000, 256,368, 119,838, 189,474, 6,600, 9,100, 21,600, 21,000, 15,700
and 15,700 shares, respectively, that may be acquired by such persons
within 60 days through the exercise of stock options. The shares owned by
the executive officers and directors as a group include 2,004,899 shares
that may be acquired by such persons within 60 days through the exercise of
stock options.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of the Common Stock to
file reports of ownership and changes in ownership concerning the Common Stock
with the Securities and Exchange Commission and to furnish the Company with
copies of all Section 16(a) forms they file. Based upon the Company's review of
the Section 16(a) filings that have been received by the Company, the Company
believes that all filings required to be made under Section 16(a) during 2002
were timely made.
6
MANAGEMENT
The following table sets forth certain information with respect to the
executive officers of the Company as of March 14, 2003. The Company's executive
officers serve at the discretion of the Board of Directors.
Name Age Position
---- --- ------------------------------------------------------------
Roger L. Jarvis... 49 Chairman of the Board, President and Chief Executive Officer
Robert M. Snell... 47 Vice President, Chief Financial Officer and Secretary
William D. Hubbard 59 Vice President--Exploration
L. Scott Broussard 45 Vice President--Drilling and Production
Kelly M. Barnes... 49 Vice President--Land
Jimmy W. Bennett.. 56 Vice President--Systems Technology and Processing
Jeffrey C. Zaruba. 38 Vice President, Treasurer and Assistant Secretary
Roger L. Jarvis has served as President, Chief Executive Officer and
Director of Spinnaker since 1996 and as Chairman of the Board of Spinnaker
since 1998. From 1986 to 1994, Mr. Jarvis served in various capacities with
King Ranch Inc. and its subsidiary, King Ranch Oil and Gas, Inc., including
Chief Executive Officer, President and Director of King Ranch Inc. and Chief
Executive Officer and President of King Ranch Oil and Gas, Inc., where he
expanded its activities in the Gulf of Mexico. Mr. Jarvis is a director of
National-Oilwell, Inc.
Robert M. Snell has served as Vice President, Chief Financial Officer and
Secretary of Spinnaker since December 2000. From 1983 to 2000, Mr. Snell served
in various capacities with Bank of America and its predecessors, most recently
as a Managing Director of Banc of America Securities LLC, focused on the energy
sector.
William D. Hubbard has served as Vice President--Exploration of Spinnaker
since 1996. From 1992 to 1996, Mr. Hubbard served as Senior Vice
President--Exploration of Global Natural Resources Corporation and its
affiliated corporations, where he was responsible for both onshore and offshore
exploration.
L. Scott Broussard has served as Vice President--Drilling and Production of
Spinnaker since August 1999 after joining the Company as Operations Manager in
1998. From 1994 to 1998, Mr. Broussard served as Vice President and co-owner of
HTK Consultants, Inc., an engineering consulting firm.
Kelly M. Barnes has served as Vice President--Land of Spinnaker since 1997.
From 1992 to 1997, Mr. Barnes served as Vice President--Land and Assistant
Corporate Secretary of Global Natural Resources Corporation and its affiliated
corporations.
Jimmy W. Bennett has served as Vice President--Systems Technology and
Processing of Spinnaker since May 2000. From 1997 to 2000, Mr. Bennett served
as Spinnaker's Systems Manager. From 1991 to 1997, Mr. Bennett served as
Systems Manager for King Ranch Oil and Gas, Inc.
Jeffrey C. Zaruba has served as Vice President, Treasurer and Assistant
Secretary of Spinnaker since May 2001 after joining the Company as Treasurer in
August 1999. From 1992 to 1999, Mr. Zaruba served as Assistant Controller and
held various financial and tax reporting positions with Cliffs Drilling
Company, which merged with R&B Falcon Corporation in 1998.
Employment Agreements
Mr. Jarvis entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that Mr. Jarvis will receive a
minimum annual base salary equal to $250,000 or such amount as the Board of
Directors may, in its sole discretion, determine from time to time. Under the
agreement, Mr. Jarvis also may receive bonuses, at the discretion of the Board
of Directors, and will be allowed to participate in
7
all benefit plans offered by Spinnaker to similarly situated employees. Either
the Board of Directors or Mr. Jarvis can terminate the employment agreement at
any time. The initial term of the employment agreement ended on December 31,
2000. Under the terms of the agreement, it automatically became a year-to-year
employment agreement. As a result, if his employment is not terminated before
December 15, 2003, or on each year thereafter, the term of the agreement will
automatically be extended for one additional year. In addition, if any payment
or distribution by Spinnaker or its affiliates to Mr. Jarvis is subject to
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
Spinnaker is required to compensate him for the amount of any excise tax
imposed on any payments or distributions pursuant to Section 4999 of the Code
and for any taxes imposed on that additional payment. Section 4999 of the Code
addresses additional taxes payable in the event of a change in control of
Spinnaker.
Mr. Hubbard entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that Mr. Hubbard will receive a
minimum annual base salary equal to $165,000 or such amount as the Board of
Directors may, in its sole discretion, determine from time to time. Under the
agreement, Mr. Hubbard also may receive bonuses, at the discretion of the Board
of Directors, and will be allowed to participate in all benefit plans offered
by Spinnaker to similarly situated employees. Either the Board of Directors or
Mr. Hubbard can terminate the employment agreement at any time. The initial
term of the employment agreement ended on December 31, 1998. Under the terms of
the agreement, it automatically became a year-to-year employment agreement. As
a result, if his employment is not terminated before December 15, 2003, or on
each year thereafter, the term of the agreement will automatically be extended
for one additional year.
Mr. Barnes entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that Mr. Barnes will receive a
minimum annual base salary equal to $110,000 or such amount as the Board of
Directors may, in its sole discretion, determine from time to time. Under the
agreement, Mr. Barnes also may receive bonuses, at the discretion of the Board
of Directors, and will be allowed to participate in all benefit plans offered
by Spinnaker to similarly situated employees. Either the Board of Directors or
Mr. Barnes can terminate the employment agreement at any time. The initial term
of the employment agreement ended on December 31, 1998. Under the terms of the
agreement, it automatically became a year-to-year employment agreement. As a
result, if his employment is not terminated before December 15, 2003, or on
each year thereafter, the term of the agreement will automatically be extended
for one additional year.
8
EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended
December 31, 2002, 2001 and 2000 with respect to the compensation of the Chief
Executive Officer of the Company and each of its four other most highly
compensated executive officers in 2002 (collectively, the "named executive
officers"). All information presented in this section is restated to reflect
the two-for-one split of the Common Stock effected in September 1999.
Summary Compensation Table
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options Compensation(2)
--------------------------- ---- -------- -------- ------------ ---------------
Roger L. Jarvis......................... 2002 $417,188 $ 55,000 -- $11,750
Chairman of the Board, President 2001 353,438 450,000 200,000 11,250
and Chief Executive Officer 2000 285,833 345,100 73,500 11,250
Robert M. Snell (3)..................... 2002 $239,250 $ 36,000 20,000 $11,750
Vice President, Chief 2001 220,000 154,000 -- 7,350
Financial Officer and Secretary 2000 -- -- 250,000 --
William D. Hubbard...................... 2002 $229,803 $ 30,000 6,000 $12,750
Vice President--Exploration 2001 207,867 200,000 80,000 11,250
2000 182,292 134,138 25,000 11,250
L. Scott Broussard...................... 2002 $202,601 $ 30,000 20,000 $11,750
Vice President--Drilling and Production 2001 182,419 155,000 60,000 11,250
2000 155,250 110,228 25,000 10,065
Kelly M. Barnes......................... 2002 $170,867 $ 26,000 20,000 $11,002
Vice President--Land 2001 149,049 130,000 60,000 9,693
2000 125,375 90,064 25,000 8,273
--------
(1) Represents annual bonus earned for the fiscal year noted, even if such
bonus was paid in the following year.
(2) The All Other Compensation column includes amounts contributed or accrued
by the Company under the Spinnaker Exploration Company 401(k) Retirement
Savings Plan ("401(k) Plan") and the dollar value of insurance premiums
paid by the Company with respect to term life insurance for the benefit of
the named executive officer.
(3) Mr. Snell was appointed Vice President, Chief Financial Officer and
Secretary of Spinnaker effective December 26, 2000.
9
Stock Options Granted in 2002
Individual Grants Potential Realizable Value
----------------------------------------- at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to Price Option Terms(3)
Options Employees Per Expiration --------------------------
Name Granted(1) in 2002(2) Share Date 5% 10%
---- ---------- ---------- -------- ---------- -------- ----------
Roger L. Jarvis... -- -- $ -- -- $ -- $ --
Robert M. Snell... 20,000 4.4% 37.73 02/12/12 474,564 1,202,638
William D. Hubbard 6,000 1.3% 37.73 02/12/12 142,369 360,791
L. Scott Broussard 20,000 4.4% 37.73 02/12/12 474,564 1,202,638
Kelly M. Barnes... 20,000 4.4% 37.73 02/12/12 474,564 1,202,638
--------
(1) The options expire ten years from the date of grant and vest 20 percent on
the grant date and 20 percent on each anniversary of the grant date.
(2) The Board of Directors granted options to purchase 450,000 shares of Common
Stock in 2002.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent upon the future performance of the Common Stock and overall
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved. The calculation does not take into account the
effects, if any, of provisions of the Company's option plans governing
termination of options upon employment termination, transferability or
vesting.
Stock Option Exercises and Fiscal Year-End Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 2002 December 31, 2002(2)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Roger L. Jarvis... -- $ -- 1,060,023 142,006 $9,495,624 $444,258
Robert M. Snell... -- -- 158,000 112,000 -- --
William D. Hubbard 30,000 1,045,762 256,368 52,592 1,813,558 120,165
L. Scott Broussard 10,000 365,470 119,838 44,760 678,552 58,013
Kelly M. Barnes... -- -- 189,474 47,719 1,224,782 80,350
--------
(1) The value realized upon exercise of a stock option is equal to the
difference between the price of the Common Stock as reported by the New
York Stock Exchange on the date of exercise and the exercise price of the
stock option multiplied by the number of shares acquired.
(2) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Common Stock as reported by the
New York Stock Exchange on December 31, 2002 of $22.05 per share and the
exercise price of the stock option.
Transactions with Management and Others
The Company purchases oilfield goods, equipment and services from Baker
Hughes Incorporated ("Baker Hughes"), Cooper Cameron Corporation ("Cooper
Cameron") and other oilfield services companies in the ordinary course of
business. The Company incurred charges of approximately $16.1 million in 2002
from affiliates of Baker Hughes, of which Mr. Michael E. Wiley, a director of
Spinnaker since March 2001, serves as Chairman of the Board, Chief Executive
Officer and President. The Company incurred charges of approximately $31,000 in
2002 from Cooper Cameron, of which Mr. Sheldon R. Erikson, a director of
Spinnaker, serves as Chairman of the Board, Chief Executive Officer and
President. Spinnaker believes that these transactions are at arm's-length and
the charges it pays for such goods, equipment and services are competitive with
the charges and
10
fees of other companies providing oilfield goods, equipment and services to the
oil and gas exploration and production industry.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors in 2002 consisted of
Messrs. Harris, Erikson and Wiley. None of the members of the Compensation
Committee served as an officer or employee of the Company, and none were
formerly an officer of the Company or any of its subsidiaries. None of the
Company's executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more of its executive
officers serving as a member of the Board of Directors or Compensation
Committee.
The Company incurred charges of approximately $16.1 million in 2002 from
affiliates of Baker Hughes, of which Mr. Michael E. Wiley, a director of
Spinnaker since March 2001, serves as Chairman of the Board, Chief Executive
Officer and President. The Company incurred charges of approximately $31,000 in
2002 from Cooper Cameron, of which Mr. Sheldon R. Erikson, a director of
Spinnaker, serves as Chairman of the Board, Chief Executive Officer and
President. The Company purchases oilfield goods, equipment and services in the
ordinary course of business. Spinnaker believes that these transactions are at
arm's-length and the charges it pays for such goods, equipment and services are
competitive with the charges and fees of other companies providing oilfield
goods, equipment and services to the oil and gas exploration and production
industry.
Compensation Committee Report on Executive Compensation
The Compensation Committee oversees the administration of compensation
programs applicable to all employees of the Company, including its executive
officers. Executive compensation is reviewed and approved annually by the
Compensation Committee.
The Compensation Committee seeks to encourage growth in the Company's oil
and gas reserves and cash flow and to enhance stockholder value through the
creation and maintenance of compensation opportunities that attract and retain
committed, highly qualified personnel. To achieve those goals, the Compensation
Committee believes that the compensation of all employees, including executive
officers, should include the following components:
. A base salary that is competitive with compensation offered by other oil
and gas exploration and production enterprises similar to the Company.
. Annual incentive compensation, based on Company performance and
profitability, to reward achievement of Company objectives, individual
responsibility and productivity, high quality work and impact on Company
results.
. Case-specific compensation plans to accommodate individual circumstances
or non-recurring situations as required.
Section 162(m) of the Code generally disallows a tax deduction to a public
company for compensation paid to its chief executive officer or four other most
highly compensated executive officers if the compensation of any such officers
exceeds $1.0 million in a particular year. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are
met. A portion of the Company's compensation is performance-based. The Company
has structured portions of its performance-based compensation, including
certain stock option grants, in a manner that excludes such compensation from
the deduction limit.
The Compensation Committee has not intended and does not currently intend to
award compensation to any executive officer that would exceed the deduction
limit of Section 162(m), but no assurance can be given that such limit will not
be exceeded. In connection with its policies relating to executive
compensation, the
11
Compensation Committee considered the implications of Section 162(m) along with
the various other factors described elsewhere in this report in making its
executive compensation determinations in 2002.
Company Performance. Spinnaker's performance in 2002 was disappointing
compared to prior years where the Company experienced significant growth rates
in both production and reserves. Financial and operating results in 2002
compared to 2001 included:
. Revenues of $188.3 million, down 10%.
. Income from operations of $49.1 million, down 51%.
. Net income of $31.6 million, or $0.97 per diluted share, down 52%.
. Production of 51.4 billion cubic feet of gas equivalent ("Bcfe"), down 3%.
. Proved reserves of 323.6 Bcfe, reserve replacement was 100% of production
in 2002.
Executive Compensation. Before taking the actions described in this report,
the Compensation Committee thoroughly reviewed and discussed the Company's
financial and operating results. A summary of the indicators deemed
particularly relevant by the Compensation Committee are presented above.
Specific actions taken by the Compensation Committee regarding executive
compensation are summarized below.
Base salary. The Compensation Committee evaluated peer group information in
setting base salary levels. Annual salary adjustments for the Company's
executive group are based on general levels of market salary increases,
individual performance and the Company's overall financial and operating
results, without any specific relative weight assigned to any of these factors.
Incentive Bonus. Awards granted to the named executive officers in February
2003 for the 2002 performance period are presented under "Bonus" in the Summary
Compensation Table. Such awards were based on level of responsibility, the
Company's performance and on individual productivity, quality of work and
impact on the Company's results. The Compensation Committee established awards
for each executive after reviewing the recommendations of the Chief Executive
Officer.
Stock Option Awards. In February 2002, the Compensation Committee granted
options to purchase 20,000, 6,000, 20,000 and 20,000 shares of Common Stock to
Messrs. Snell, Hubbard, Broussard and Barnes, respectively, to provide
incentive with respect to the Company's future performance. Additionally, these
awards have a meaningful retention component since 20% vest on the grant date
and on each succeeding anniversary of the grant date.
401(k) Plan. Under the 401(k) Plan, eligible employees may defer the
maximum income allowed under current tax law. Salary deferrals are 100 percent
vested. Effective January 1, 2001, the Company began matching employee
contributions to the 401(k) Plan. The Company matches 100 percent of each
participant's contributions, up to six percent of the participant's annual base
salary, with Common Stock.
Chief Executive Officer Compensation. As described above, the Company's
executive compensation philosophy, including compensation of the Chief
Executive Officer, is a competitive base salary and incentive compensation
based upon the Company's performance. Specific actions taken by the
Compensation Committee regarding Mr. Jarvis' compensation are summarized below.
Base Salary. The Compensation Committee increased Mr. Jarvis' salary from
$362,500 in 2001 to $425,000 effective February 16, 2002. The Compensation
Committee considered financial and operating results for 2001 and the
compensation received by chief executive officers of comparable companies in
the oil and gas exploration and production industry.
12
Incentive Bonus. The Compensation Committee approved a bonus of $55,000 to
Mr. Jarvis for 2002, which was paid in February 2003. This award was based upon
the Company's performance and his impact on the Company's results in 2002.
Stock Option Awards. The Compensation Committee granted no options to
purchase shares of Common Stock to Mr. Jarvis in 2002.
Compensation Committee
Jeffrey A. Harris, Chairman
Sheldon R. Erikson
Michael E. Wiley
Report of the Audit Committee
The Audit Committee is comprised of three directors, each of whom has been
determined to be independent in accordance with the requirements of Section
303.01(B)(2)(a) and (3) of the New York Stock Exchange listing standards.
Management is responsible for the Company's financial reporting process and
systems of internal controls. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes, the independence and performance of the Company's
independent auditors and any internal audit function that may be utilized in
the future. The Audit Committee's specific responsibilities are set forth in
the Audit Committee Charter, which is attached as Appendix A to the Company's
2003 Proxy Statement.
The Audit Committee has reviewed and discussed with Spinnaker's management
and KPMG LLP, the Company's independent auditors, the audited financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.
The Audit Committee has also discussed with the independent auditors the
matters required to be discussed pursuant to Statement of Auditing Standards
No. 61, Communication with Audit Committees, as amended by the Auditing
Standards Board of the American Institute of Certified Public Accountants.
The Audit Committee has received and reviewed the written disclosures and
the letter from KPMG required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as amended by the Independence
Standards Board, and has discussed with KPMG such independent auditors'
independence. The Audit Committee has also considered whether the provision of
non-audit services to Spinnaker by KPMG is compatible with maintaining their
independence.
Based on the review and discussion referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 to be filed with the Securities and Exchange Commission.
This report is submitted on behalf of the Audit Committee.
Michael E. McMahon, Chairman
Michael G. Morris
Michael E. Wiley
13
Fiscal 2002 Audit Fee Summary
During fiscal year 2002, KPMG provided services to the Company in the
following categories and amounts:
Audit fees........ $299,253
Audit related fees 8,200
Tax fees.......... 45,000
All other fees.... --
Audit fees include $154,253 related to quarterly reviews and audits for the
years ended December 31, 2001 and 2000. Audit related fees include
consultations and additional fees related to the Company's compliance with the
Sarbanes-Oxley Act. Tax fees are primarily related to federal and state income
tax filings.
The Audit Committee is responsible for pre-approving all audit services and
all permitted non-audit services, including tax services, to be performed by
the independent auditors for the Company. The Audit Committee has delegated
pre-approval authority for audit or non-audit services to the Chairman of the
Audit Committee, whose decisions shall be presented to the full Audit Committee
at its next scheduled meeting.
Stockholder Return Performance Presentation
As required by applicable rules of the Securities and Exchange Commission,
the performance graph shown below was prepared based upon the following
assumptions:
1. $100 was invested in Common Stock on September 29, 1999, and $100 was
invested in each of the S&P 500 Index and the Peer Group (as defined
below) on September 29, 1999 at the closing price on such date.
2. The Peer Group investment is weighted based on the market capitalization
of each individual company within the applicable peer group at the
beginning of the period and each year.
3. Dividends are reinvested on the ex-dividend dates.
The industry peer group ("Peer Group") is comprised of the following: Forest
Oil Corp., The Houston Exploration Company, Newfield Exploration Company, Noble
Affiliates, Inc., Pogo Producing Company, Stone Energy Corporation and Westport
Resources Corporation.
[CHART]
Spinnaker Exploration Company S&P 500 Index Peer Group
9/29/1999 $100.00 $100.00 $100.00
12/31/1999 $97.41 $111.73 $81.33
12/31/2000 $293.09 $101.56 $142.41
12/31/2001 $283.85 $89.49 $109.65
12/31/2002 $152.06 $69.71 $117.47
09/29/99 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- --------
Spinnaker.... $100.00 $ 97.41 $293.09 $283.85 $152.06
S&P 500 Index $100.00 $111.73 $101.56 $ 89.49 $ 69.71
Peer Group... $100.00 $ 81.33 $142.41 $109.65 $117.47
14
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Definitive Proxy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates this graph by reference, and shall not
otherwise be deemed filed under such Acts.
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the performance
graph. The Company will not make or endorse any predictions as to future stock
performance.
APPROVAL OF THE SPINNAKER EXPLORATION COMPANY 2003 STOCK OPTION PLAN
(Proposal Two)
General
At the Annual Meeting, the stockholders will be asked to approve the
adoption of the Spinnaker Exploration Company 2003 Stock Option Plan (the "2003
Plan"). A copy of the 2003 Plan is attached hereto as Appendix B. As of March
14, 2003, an aggregate of 204,535 shares of Common Stock were available for
grant pursuant to all of the Company's employee stock plans. The 2003 Plan
differs from prior plans as follows:
. The total number of shares of Common Stock reserved and available for
delivery in connection with options may not exceed 1,650,000 shares.
. Awards may include incentive stock options, options which do not
constitute incentive stock options or a combination of both, as is best
suited to the circumstances of the particular individual.
. The term of each option may not exceed a period of five years.
. No option may be repriced, replaced, regranted through cancellation or
modified without stockholder approval, except in connection with a change
in the Company's capitalization, if the effect would be to reduce the
exercise price for the shares underlying such option.
. The exercise price shall not be less than 105% of the fair market value
per share of Common Stock on the date of grant of the option, or with
respect to incentive stock options and in the case of an individual who
owns stock possessing more than 10% of the total combined voting power of
all classes of capital stock of the Company, 110% of the fair market
value per share of Common Stock on the date of grant.
The Compensation Committee of the Board of Directors unanimously adopted the
2003 Plan on March 24, 2003, subject to stockholder approval at the Annual
Meeting. If the stockholders do not approve the 2003 Plan at the Annual
Meeting, then no awards will be granted under the 2003 Plan. The following
description of certain features of the 2003 Plan is qualified in its entirety
by reference to the 2003 Plan. Approval of the 2003 Plan requires the
affirmative vote of the holders of a majority of the Common Stock present, or
represented by proxy and entitled to vote at the Annual Meeting. Accordingly,
an abstention or a broker non-vote would have the same effect as a vote against
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
SPINNAKER EXPLORATION COMPANY 2003 STOCK OPTION PLAN.
Purpose
The 2003 Plan is designed to provide a means through which the Company may
attract and retain able persons to serve as employees, directors and
consultants of the Company and to provide a means whereby those persons upon
whom the responsibilities of the successful administration and management of
the Company rest, and whose present and potential contributions to the welfare
of the Company are of importance, can acquire and maintain stock ownership,
thereby strengthening their concern for the welfare of the Company and their
desire to
15
remain in its employ. A further purpose of the 2003 Plan is to provide such
employees and directors with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the 2003
Plan provides for granting incentive stock options, options which do not
constitute incentive stock options or a combination of both, as is best suited
to the circumstances of the particular individual.
Effective Date and Duration
The 2003 Plan became effective on March 24, 2003, provided the 2003 Plan is
approved by stockholders within twelve months thereafter. Notwithstanding any
provision in the 2003 Plan, in any option agreement, no option shall be
exercisable prior to such stockholder approval. No further awards may be
granted under the 2003 Plan after March 24, 2008. The 2003 Plan shall remain in
effect until all options granted under the 2003 Plan expire or are exercised or
forfeited.
Administration
The 2003 Plan shall be administered by the Compensation Committee, except to
the extent the Board of Directors elects to administer the 2003 Plan. Subject
to the express provisions of the 2003 Plan, the Compensation Committee shall
have authority, in its sole and absolute discretion, to make such
determinations, perform such acts and exercise such power and authority
necessary or advisable to administer the 2003 Plan.
Shares Subject to the 2003 Plan and Award Limits
Subject to adjustment in the event of the recapitalization or reorganization
or other change in the Company's capital structure, the aggregate number of
shares of Common Stock that may be issued under the 2003 Plan shall not exceed
1,650,000 shares. To the extent that an award lapses or the rights of its
holder terminate, any shares of Common Stock subject to such award shall again
be available for granting by the Compensation Committee under the 2003 Plan.
Notwithstanding any provision in the 2003 Plan to the contrary, the maximum
number of shares of Common Stock that may be granted to any one individual
during any calendar year may not exceed 300,000 shares of Common Stock, subject
to adjustment in the event of the recapitalization or reorganization or other
change in the Company's capital structure. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code.
Grant of Options
The Compensation Committee may from time to time grant options to one or
more employees, directors and consultants determined by it to be eligible for
participation in the 2003 Plan in accordance with the terms of the 2003 Plan.
Currently, there are 64 employees, six directors and eight contractors to whom
the Compensation Committee may grant awards under the 2003 Plan.
Eligibility
Awards may be granted only to persons who, at the time of grant, are
employees, directors or consultants. An employee on leave of absence may be
considered as still in the employ of the Company for purposes of eligibility
for participation in the 2003 Plan. An award may be granted on more than one
occasion to the same person and, subject to the limitations set forth in the
2003 Plan, such award may include incentive stock options, options which do not
constitute incentive stock options or a combination of both, as is best suited
to the circumstances of the particular individual.
Stock Options
The term of each option shall be as specified by the Compensation Committee,
but in any case may not exceed a period of five years. The Compensation
Committee shall determine the time or times at which or the
16
circumstances under which an option may be exercised in whole or in part,
including based on future service requirements, the methods by which such
exercise price may be paid or deemed to be paid, the form of such payment,
including, without limitation, cash, Common Stock, other options or awards
granted under other plans of the Company, or other property, including notes or
other contractual obligations of persons who have been granted an option to
make payment on a deferred basis, and the methods by or forms in which Common
Stock will be delivered or deemed to be delivered to such persons. In the case
of an exercise whereby the exercise price is paid with Common Stock, such
Common Stock shall be valued as of the date of exercise.
Each option shall be evidenced by an option agreement in such form and
containing such provisions consistent with the provisions of the 2003 Plan.
Each option agreement shall specify the effect of termination of employment or
membership on the Board of Directors, as applicable, on the exercisability of
the option. An option agreement may provide for the payment of the option
price, in whole or in part, by the delivery of a number of shares of Common
Stock, plus cash if necessary, having a fair market value equal to such option
price. Moreover, an option agreement may provide for a "cashless exercise" of
the option by establishing procedures satisfactory to the Compensation
Committee with respect thereto. Subject to the consent of the holder, the
Compensation Committee may, in its sole discretion, amend an outstanding option
agreement from time to time in any manner that is not inconsistent with the
provisions of the 2003 Plan; provided, however, that the Compensation Committee
may not, without approval of the stockholders of the Company, amend any
outstanding option agreement to lower the option price or cancel and replace
any outstanding option agreements with option agreements having a lower option
price.
The price at which a share of Common Stock may be purchased upon exercise of
an option shall be determined by the Compensation Committee but, subject to
adjustment as provided in the 2003 Plan, such purchase price shall not be less
than 105% of the fair market value of a share of Common Stock on the date such
option is granted, or with respect to incentive stock options and in the case
of an individual who owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Company, such purchase
price shall not be less than 110% of the fair market value of a share of Common
Stock on the date such option is granted. As of March 26, 2003, the last
reported sales price of the Common Stock was $18.43. The option or portion
thereof may be exercised by delivery of an irrevocable notice of exercise to
the Company, as specified by the Compensation Committee. The purchase price of
the option or portion thereof shall be paid in full in the manner prescribed by
the Compensation Committee. Separate stock certificates shall be issued by the
Company for those shares acquired pursuant to the exercise of the stock option.
Recapitalization or Reorganization
The existence of the 2003 Plan and the options granted thereunder shall not
affect in any way the right or power of the Board of Directors or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
issue of debt or equity securities ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of the assets or
business of the Company or any other corporate act or proceeding.
The shares of Common Stock with respect to which options may be granted are
shares of Common Stock as presently constituted, but if, and whenever, prior to
the expiration of an option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the Company,
the number of shares of Common Stock with respect to which such option may
thereafter be exercised (i) in the event of an increase in the number of
outstanding shares of Common Stock shall be proportionately increased, and the
purchase price per share of Common Stock shall be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares of Common
Stock shall be proportionately reduced, and the purchase price per share of
Common Stock shall be proportionately increased. Any fractional share resulting
from such adjustment shall be rounded up to the next whole share.
17
If the Company recapitalizes, reclassifies its capital stock or otherwise
changes its capital structure ("Recapitalization"), the number and class of
shares of Common Stock covered by an option theretofore granted shall be
adjusted so that such option shall thereafter cover the number and class of
shares of capital stock and securities to which the holder would have been
entitled pursuant to the terms of the Recapitalization if, immediately prior to
the Recapitalization, the holder had been the holder of record of the number of
shares of Common Stock then covered by such option.
In the event of changes in the outstanding Common Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
split-ups, split-offs, spin-offs, exchanges or other relevant changes in
capitalization or distributions to the holders of Common Stock occurring after
the date of the grant of any award and not otherwise provided for by the 2003
Plan, such award and any agreement evidencing such award shall be subject to
adjustment by the Compensation Committee at its discretion as to the number and
price of shares of Common Stock or other consideration subject to such award.
In the event of any such change in the outstanding Common Stock or distribution
to the holders of Common Stock, the aggregate number of shares available under
the 2003 Plan and the maximum number of shares that may be subject to awards
granted to any one individual shall be appropriately adjusted by the
Compensation Committee, whose determination shall be conclusive.
In connection with certain mergers and other events, the 2003 Plan provides
that outstanding options shall immediately vest and become exercisable or
satisfiable, as applicable, and any such option shall continue to be
exercisable for the remainder of the applicable option term unless the
Compensation Committee has determined, in its sole discretion, to take other
actions specified in the 2003 Plan.
Amendment and Termination of the 2003 Plan
The Board of Directors may amend, alter, suspend, discontinue or terminate
the 2003 Plan or the Compensation Committee's authority to grant options under
the 2003 Plan without the consent of stockholders or a person who has been
granted an option under the 2003 Plan, except that any amendment or alteration
to the 2003 Plan, including any increase in any share limitation, shall be
subject to the approval of the Company's stockholders if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Common Stock may
then be listed or quoted.
New Plan Benefits
The Compensation Committee has not determined targeted stock option grants
in 2003.
Federal Income Tax Consequences
"Nonqualified" stock options granted under the 2003 Plan are not intended
to, and do not qualify for, the favorable tax treatment available to
"incentive" stock options under Section 422 of the Code. Generally, no income
is taxable to the holder of an option upon the grant of a nonqualified stock
option, and the Company is not entitled to any deduction. When a nonqualified
stock option is exercised, the holder of an option generally must recognize
compensation taxable as ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
Subject to certain limitations on compensation in excess of $1.0 million set
forth in Section 162(m) of the Code, the Company will receive a deduction equal
to the amount of compensation the holder of an option is required to recognize
as ordinary income if the Company complies with applicable federal withholding
requirements.
"Incentive" stock options granted under the 2003 Plan are intended to
qualify for favorable tax treatment under Section 422 of the Code. Under
Section 422, a holder of an option realizes no taxable income when an incentive
stock option is granted. Further, the holder of an option generally will not
realize any taxable income when the incentive stock option is exercised if he
or she has at all times from the date of the option's grant until three months
before the date of exercise been an employee of the Company. The Company
ordinarily is not
18
entitled to any deduction upon the grant or exercise of an incentive stock
option. Certain other favorable tax consequences may be available to the holder
of an option if he or she does not dispose of the shares acquired upon the
exercise of an incentive stock option for a period of two years from the
granting of the option and one year from the receipt of the shares.
Certain provisions in the 2003 Plan provide for the acceleration of the time
at which options then outstanding may be exercised. Such acceleration may
constitute "parachute payments" which, when aggregated with certain other
payments received by an individual, could result in the individual receiving
"excess parachute payments," a portion of which would be allocated to those
payments derived from an award of stock. The Company would not be allowed a
deduction for any excess parachute payments and the recipient of the payments
would be subject to a nondeductible 20% excise tax on such payments in addition
to income tax otherwise owed with respect to such payment.
Miscellaneous
Neither the adoption of the 2003 Plan nor any action of the Board of
Directors or of the Compensation Committee shall be deemed to give an employee,
director or consultant any right to be granted an option or any other rights
hereunder except as may be evidenced by an option agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The 2003 Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the performance of its
obligations under any award.
Information Regarding Plans and Other Arrangements Not Subject to Security
Holder Action
At December 31, 2002, officers, directors and employees had been granted
options to purchase Common Stock under stock plans adopted in 1998, 1999, 2000
and 2001. The following table provides information related to the Company's
current equity compensation plans:
Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise outstanding for future issuance
of outstanding options, options, warrants under equity
Plan category warrants and rights and rights compensation plans
------------- ----------------------- ----------------- --------------------
Equity compensation plans approved by security
holders......................................... 3,954,002 $23.00 137,476
Equity compensation plans not approved by security
holders......................................... 432,531 $31.81 67,059
--------- -------
Total.......................................... 4,386,533 $23.87 204,535
========= =======
The Spinnaker Exploration Company 2000 Stock Option Plan (the "2000 Plan")
was adopted by the Board of Directors without the approval of the stockholders
of the Company in order for Spinnaker to grant options to purchase Common Stock
as a material inducement to certain persons who were not previously employed by
the Company to enter into an employment contract with the Company. The number
of shares of Common Stock that may be issued under the 2000 Plan may not exceed
500,000 shares. The purchase price of any Common Stock pursuant to any options
granted under the 2000 Plan may not be less than 80% of the fair market value
of the Common Stock on the date the option is granted, subject to certain
limited exceptions. The Company has not granted nor does it intend to grant any
options under the 2000 Plan at a price below the fair market value of the
Common Stock on the date of grant.
APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal Three)
The Audit Committee, under the authority granted to it by the Board of
Directors, appointed KPMG as independent auditors to audit the consolidated
financial statements of the Company for the year ending December 31, 2003.
19
Ratification of this appointment shall be effective upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting. Accordingly,
an abstention or a broker non-vote would have the same effect as a vote against
this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION OF
THIS APPOINTMENT.
The Audit Committee annually considers and selects the Company's independent
auditors. On April 5, 2002, the Audit Committee, under the authority granted to
it by the Board of Directors, decided to dismiss Arthur Andersen LLP as
Spinnaker's independent public accountants and engaged KPMG to serve as
Spinnaker's independent auditors for 2002.
Andersen's reports on the Company's consolidated financial statements for
either of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the Company's two most recent fiscal years and the period from
January 1, 2002 through April 5, 2002, there were no disagreements with
Andersen on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Andersen, would have caused Andersen to
make reference to the subject matter of the disagreements in connection with
Andersen's report; and during such period there were no "reportable events" of
the kind listed in Item 304(a)(1)(v) of Regulation S-K.
The Company previously provided Andersen with a copy of the foregoing
disclosure and requested Andersen to furnish Spinnaker with a letter addressed
to the Securities and Exchange Commission stating whether it agreed with the
statements by the Company in the foregoing disclosure and, if not, stating the
respects in which it did not agree. Andersen's letter was filed as Exhibit 16.1
to the Company's Current Report on Form 8-K dated April 5, 2002.
During the Company's two fiscal years ended December 31, 2001 and 2000 and
through the period from January 1, 2002 through April 5, 2002, it did not
consult KPMG with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events listed in Items
304(a)(2)(i) and (ii) of Regulation S-K.
In the event the appointment is not ratified, the Audit Committee will
consider the appointment of other independent auditors. The Audit Committee may
terminate the appointment of KPMG as the Company's independent auditors without
the approval of the stockholders of the Company whenever the Audit Committee
deems such termination necessary or appropriate. A representative of KPMG is
expected to be present at the Annual Meeting, will be offered the opportunity
to make a statement if such representative desires to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournments(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons voting the proxy.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Any stockholder who wishes to submit a proposal for inclusion in the proxy
material for the Company's 2004 Annual Meeting of Stockholders must forward
such proposal to the Secretary of the Company at the address indicated on the
cover page of this proxy statement, so that the Secretary receives it no later
than November 28, 2003.
20
In addition, the Company's Bylaws provide that only such business as is
properly brought before the Annual Meeting will be conducted. For business to
be properly brought before the meeting or for nominations of persons for
election to the Board of Directors to be properly made at the Annual Meeting by
a stockholder, notice must be received by the Secretary of the Company at the
address indicated on the cover page not earlier than January 7, 2004 and not
later than February 6, 2004.
On request, the Secretary of the Company will provide detailed instructions
for submitting proposals or nominations.
By Order of the Board of Directors
/s/
Robert M. Snell
Robert M. Snell
Secretary
March 27, 2003
21
Appendix A
SPINNAKER EXPLORATION COMPANY
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Purpose
The purpose of the Audit Committee (the "Audit Committee") of the Board of
Directors (the "Board") of Spinnaker Exploration Company ("Spinnaker") is to
serve as an independent and objective party to:
. oversee the quality and integrity of the financial statements and other
financial information Spinnaker provides to any governmental body or the
public;
. oversee Spinnaker's compliance with legal and regulatory requirements;
. oversee the independent auditor's qualifications and independence;
. oversee the performance of Spinnaker's internal audit function and
independent auditors;
. oversee Spinnaker's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board
have established;
. provide an open avenue of communication among the independent auditor,
financial and senior management, the internal auditor, and the Board,
always emphasizing that the independent auditor is accountable to the
Audit Committee;
. oversee the receipt, retention and treatment of complaints regarding
Spinnaker's accounting, internal accounting controls and other accounting
matters; and
. such other duties as are directed by the Board.
Consistent with this purpose, the Audit Committee should encourage continuous
improvement of, and should foster adherence to, Spinnaker's policies,
procedures and practices at all levels.
The Audit Committee shall prepare annually a report meeting the requirements
of any applicable regulations of the Securities and Exchange Commission ("SEC")
to be included in Spinnaker's proxy statement relating to its annual meeting of
stockholders.
Composition
The Audit Committee will be appointed annually by the Board based on the
recommendation of the Nominating and Corporate Governance Committee of the
Board and shall serve until their successors shall be duly elected and
qualified. A majority of the Audit Committee shall elect the Chairman of the
Audit Committee. Any member of the Audit Committee may be removed by a vote of
a majority of the Board.
The Audit Committee will be comprised of at least three directors, none of
whom shall be an affiliated person of Spinnaker or any of its subsidiaries. No
member of the Audit Committee may receive any consulting, advisory or other
compensatory fee from Spinnaker other than fees paid to such member of the
Audit Committee in his or her capacity as a member of the Board, the Audit
Committee or any other committee of the Board (including such additional fees
as may be paid for serving as a chairman of a committee of the Board). Each
member of the Audit Committee shall be "independent" as defined from time to
time by the listing standards of the New York Stock Exchange (the "NYSE"),
Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")
and by applicable regulations of the SEC, and shall meet any other applicable
independence requirements of the NYSE and the SEC. As such, the Board shall
affirmatively determine on an annual basis whether each member of the Audit
Committee is free from any relationship that may interfere with his or her
independence from management and Spinnaker. No member shall serve on an audit
committee of more than two other public companies at any one time.
A-1
Members of the Audit Committee shall be financially literate or become
financially literate within a reasonable period of time after appointment to
the Audit Committee, and at least one member of the Audit Committee will have
accounting or related management expertise in accordance with the requirements
of the NYSE. The Audit Committee will self-assess the financial literacy and
other skills of Audit Committee members against those skills that are needed to
fulfill the Audit Committee's roles and responsibilities on an annual basis.
The Audit Committee will solicit feedback on the skill requirements and skill
gaps of the Audit Committee and assess the contribution and performance of
individual Audit Committee members from the Board, management and independent
auditor. The Audit Committee shall continually monitor membership requirements.
Notwithstanding the foregoing membership requirements, no action of the
Audit Committee shall be invalid by reason of any such requirement not being
met at the time such action is taken.
Mission Statement and Principal Functions
The Audit Committee's oversight role shall serve to provide reasonable
assurance that the following objectives are achieved:
. Financial Reporting Process--Spinnaker's financial statements and any
other financial information provided to any governmental body or the
public fairly present in all material respects the financial condition
and results of operation of Spinnaker in conformity with generally
accepted accounting principles.
. System of Internal Controls--Spinnaker's system of internal controls
regarding finance, accounting, legal and ethical compliance provides
reasonable assurance as to the reliability of financial statements and
the protection of assets from unauthorized acquisition, use or
disposition.
. Corporate Compliance Process--Spinnaker is in compliance with all
material laws and regulations, is conducting its affairs ethically and is
maintaining effective controls against employee conflict of interest and
fraud.
The Audit Committee shall have the authority to take all actions it deems
advisable to fulfill its responsibilities and duties. As such, the Audit
Committee will have direct access to financial, legal, and other staff and
consultants of Spinnaker. Such advisors may assist the Audit Committee in
defining its role and responsibilities, consult with Audit Committee members
regarding a specific audit or other issue that may arise in the course of the
Audit Committee's duties and conduct independent investigations, studies, or
tests. The Audit Committee has the authority to employ such other accountants,
attorneys, consultants or other outside advisors to assist the Audit Committee
as it deems necessary or advisable in its sole discretion. Spinnaker will
provide for appropriate funding, as determined by the Audit Committee, for
payment of compensation to the independent auditor for the purpose of rendering
or issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee may also meet with Spinnaker's investment bankers or
financial analysts who follow Spinnaker. The Audit Committee may request any
officer or employee of Spinnaker or any of its subsidiaries, Spinnaker's
outside legal counsel and Spinnaker's external auditors to meet with the Audit
Committee, any member of the Audit Committee or any consultant to the Audit
Committee. The Audit Committee will report to the Board on a regular basis, and
the Board shall provide an annual performance evaluation of the Audit Committee.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits, to determine that Spinnaker's financial statements are complete and
accurate or to determine that such statements are in accordance with generally
accepted accounting principles. Spinnaker's management is responsible for the
preparation of Spinnaker's financial statements in accordance with generally
accepted accounting principles and Spinnaker's internal controls. Spinnaker's
independent auditor is responsible for the audit work on Spinnaker's financial
statements. It is also not the duty of the Audit Committee to conduct
investigations or to assure compliance with laws, regulations and Spinnaker's
A-2
policies and procedures. Spinnaker's management is responsible for compliance
with laws, regulations and Spinnaker's policies and procedures.
The Audit Committee's principal areas of oversight shall include the
following:
Financial Reporting Process
The Audit Committee shall:
. Annually select and engage (subject to stockholder ratification) the
independent auditor retained to audit the financial statements of
Spinnaker, review the compensation of the independent auditor and
evaluate the performance and on-going qualifications of the independent
auditor. Spinnaker shall provide for appropriate funding, as determined
by the Audit Committee, for payment of compensation to the independent
auditor.
. Dismiss the independent auditor if it determines, in its sole discretion,
that such action is necessary.
. Review the experience and qualifications of the senior members of the
independent auditor's team and the quality control procedures of the
independent auditor.
. Require that the independent auditor rotates the lead audit partner and
the reviewing audit partner engaged on Spinnaker's account as required by
law. The Audit Committee shall also consider whether, in order to assure
continuing auditor independence, it is appropriate to adopt a policy of
rotating the independent auditor on a regular basis.
. Pre-approve all audit services (including comfort letters) and all
permitted non-audit services (including tax services) to be performed by
the independent auditor for Spinnaker. The Audit Committee may delegate
pre-approval authority for audit or non-audit services to one or more
members, whose decisions shall be presented to the full Audit Committee
at its next scheduled meeting.
. Set guidelines for Spinnaker's hiring of employees or former employees of
the independent auditor.
. Evaluate the qualifications, performance and independence of the
independent auditor, including considering whether the independent
auditor's quality controls are adequate and the provision of permitted
non-audit services is compatible with maintaining the independent
auditor's independence, and taking into account the opinions of
management and the internal auditor. The Audit Committee shall present
its conclusions with respect to the independent auditor to the Board.
. Periodically obtain and review a report from the independent auditor
regarding all relationships between the independent auditor and Spinnaker
that may impact the independent auditor's objectivity and independence,
and discuss such report with the independent auditor. The Audit Committee
shall also recommend any appropriate action to the Board in response to
the written report necessary to satisfy itself of the independence and
objectivity of the independent auditor.
. At least annually, obtain and review a report by the independent auditor
describing such firm's internal quality-control procedures; any material
issues raised by the most recent internal quality-control review, or peer
review, of the firm, or by any inquiry or investigation by government or
professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the firm, and any steps taken
to deal with any such issues.
. Review with the independent auditor, prior to the initiation of the
annual audit, the independent auditor's process for identifying and
responding to key audit and internal control risks, and the scope and
approach of the audit to assure completeness of coverage of key business
controls and risk areas.
. Periodically discuss separately with management, the independent auditor
and the internal auditor the adequacy and integrity of Spinnaker's
accounting policies and procedures and internal accounting controls, the
completeness and accuracy of Spinnaker's financial disclosure and the
extent to which major recommendations made by the independent auditor or
the internal auditor have been implemented or resolved.
A-3
. Approve the formation of all offshore subsidiaries or affiliates of
Spinnaker.
. Serve as a channel of communication between the independent auditor and
the Board and/or management of Spinnaker. The independent auditor is
ultimately accountable to the Audit Committee of the Board.
. Instruct the independent auditor to report directly to the Audit
Committee any problems or difficulties incurred in connection with the
audit, including any restrictions on the scope of activities or access to
required information, or any disagreements with management and resolve
any disagreements between management and the independent auditor
regarding financial reporting.
. Review the financial statements and footnotes to be included in the
annual report to stockholders and Form 10-K filings made with the SEC. In
addition, review findings of any examinations by regulatory agencies,
such as the SEC.
. Review with management and the independent auditor at the completion of
the annual audit:
. The independent auditor's audit of the financial statements and its
report thereon.
. Any significant changes required in the independent auditor's audit
plan.
. The existence of significant estimates and judgments underlying the
financial statements, including the rationale behind those estimates
as well as the details of material accruals and reserves.
. The critical accounting policies used in the financial statements, an
analysis of the effect of alternative methods of applying generally
accepted accounting principles on Spinnaker's financial statements and
a description of any transactions as to which management obtained
Statement on Auditing Standards No. 50 letters.
. Insider and affiliated party transactions and potential conflicts of
interest.
. Other matters related to the conduct of the audit, which are to be
communicated to the Audit Committee under generally accepted auditing
standards.
. Review significant reports prepared by the internal auditor together with
management's response and follow up to these reports.
. Review and approve the appointment, performance and replacement of the
internal auditor.
. Direct the scope of the duties and activities of the internal auditor,
who shall report directly to the Audit Committee.
. Periodically meet and review with the internal auditor the regular
internal reports to management prepared by the internal auditor and the
progress of activities and any findings of major significance stemming
from internal audits.
. Discuss with management and the internal auditor policies with respect to
risk assessment and risk management.
. Review with management and the independent auditor the effect of
regulatory and accounting initiatives as well as any off-balance sheet
structures contemplated by Spinnaker in Spinnaker's financial statements.
. Review with management and the independent auditor the disclosures made
in management's discussion and analysis of financial condition and
results of operations in Spinnaker's reports on Form 10-Q or Form 10-K.
. Review with management and the independent auditor Spinnaker's quarterly
financial statements prior to the filing of its Form 10-Q, including the
results of the independent auditor's review of the quarterly financial
statements.
. Review with management Spinnaker's earnings press releases, including the
use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance, if any,
A-4
provided to analysts or ratings agencies. Such discussions may be done
generally (consisting of discussing the types of information to be
disclosed and the types of presentations to be made) and need not precede
each earnings release or each instance in which Spinnaker provides
guidance.
. Review with management and the independent auditor any correspondence
with regulators or governmental agencies and any employee complaints or
published reports that raise issues regarding Spinnaker's financial
statements or accounting policies.
. Review with management and/or outside legal counsel any legal and
regulatory matters that may have a material impact on Spinnaker's
financial statements, its compliance policies and any material reports or
inquiries received from regulators or governmental agencies.
. Discuss with the independent auditor the matters required to be discussed
by Statement of Auditing Standards No. 61 relating to the conduct of the
audit, including any problems or difficulties encountered in the course
of the audit work and management's response, any restrictions on the
scope of activities or access to requested information and any
significant disagreements with management.
. Recommend to the Board whether or not to include Spinnaker's audited
financial statements in its annual report on Form 10-K.
System of Internal Controls
. Review and evaluate the effectiveness of Spinnaker's process for
assessing significant risks or exposures and the steps management has
taken to minimize such risks to Spinnaker. Consider and review with
management and the independent auditor the following:
. The effectiveness of or weaknesses in Spinnaker's internal controls
including the status and adequacy of management information systems
and other information and security, the overall control environment
and accounting and financial controls;
. Any disclosures provided by the Chief Executive Officer or the Chief
Financial Officer to the Audit Committee regarding (i) significant
deficiencies in the design or operation of internal controls which
could adversely affect Spinnaker's ability to record, process,
summarize and report financial data and (ii) any fraud, including that
which involves management or other employees who have a significant
role in Spinnaker's internal controls; and
. Any related significant findings and recommendations of the
independent auditor, together with management's response thereto,
including the timetable for implementation of recommendations to
correct weaknesses in internal controls.
. Assess internal processes for determining and managing key financial
statement risk areas.
. Ascertain whether Spinnaker has an effective process for determining
risks and exposures from asserted and unasserted litigation and claims
and from noncompliance with laws and regulations.
. Review with management, the internal auditor and the independent auditor
any significant transactions that are not a normal part of Spinnaker's
operations and changes, if any, in Spinnaker's accounting principles or
their application.
Corporate Compliance Process
. Approve for recommendation to the Board Spinnaker's policies and
procedures regarding compliance with law and with significant company
policies, including, but not limited to, codes of conduct expressing
principles of business ethics, legal compliance, the Foreign Corrupt
Practices Act, environmental, health, and safety issues and other matters
relating to business conduct and programs of legal compliance designed to
prevent and detect violations of law.
A-5
. Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls, auditing
matters and the confidential, anonymous submissions by employees of
concerns regarding accounting and auditing matters. Monitor actions taken
by Spinnaker in response to any letters or reports to management provided
by the internal auditor or independent auditor.
. Monitor compliance with Spinnaker's code of conduct and approve any
waivers under the code of conduct.
. Investigate at its discretion any matter brought to its attention by
reviewing the books, records and facilities of Spinnaker and interviewing
Spinnaker's officers or employees.
. Obtain from the independent auditor assurance that Section 10A(b) of the
Exchange Act has not been implicated.
. Review management's monitoring of Spinnaker's compliance programs and
evaluate whether management has the proper review systems in place to
ensure that Spinnaker's financial statements, reports and other financial
information disseminated to governmental organizations and the public
satisfy legal requirements.
. Review with Spinnaker's management and others any legal, tax or
regulatory matters that may have a material impact on Spinnaker's
operations and the financial statements, related company compliance
policies and programs and reports received from regulators.
. Review policies and procedures with respect to officers' expense
accounts, including their use of corporate assets, and consider the
results of any review of these areas by the independent auditor.
. Perform such other activities as are consistent with this Charter,
Spinnaker's Certificate of Incorporation and Restated Bylaws (each as may
be amended from time to time), the rules and regulations of the New York
Stock Exchange applicable to domestic listed companies and governing laws
as the Audit Committee or the Board deems necessary or advisable.
Meetings
The Audit Committee will meet at least quarterly, or more frequently as
necessary to carry out its responsibilities.
The Audit Committee will meet at least annually with each of management, the
independent public accountants and the internal auditor in separate executive
sessions to discuss any matters that the Audit Committee or each of these
groups believe should be discussed privately.
The Audit Committee will meet with management and the independent public
accountants prior to the release of Spinnaker's quarterly or annual earnings to
discuss the results of the quarterly review or audit as applicable.
The Chairman of the Audit Committee and/or management of Spinnaker may call
additional meetings as deemed necessary. In addition, the Audit Committee will
make itself available to the independent public accountants of Spinnaker as
requested by such independent public accountants.
All meetings of the Audit Committee shall be held pursuant to the Bylaws of
Spinnaker with regard to notice and waiver thereof, and written minutes of each
meeting shall be duly filed in the records of the Audit Committee. Reports of
meetings of the Audit Committee, including committee actions and
recommendations, shall be made to the Board at its next regularly scheduled
meeting following the Audit Committee meeting.
A-6
Other Audit Committee Responsibilities
The Audit Committee will review and reassess the adequacy of this Charter on
an annual basis, and will submit the charter to the Board for approval. The
Audit Committee Charter will be included in the proxy statement as required
under SEC regulations.
The Audit Committee will conduct an annual review and evaluation of its own
performance and will submit itself to the review and evaluation of the Board.
The Audit Committee will prepare a report to the stockholders of Spinnaker,
to be included in the proxy statement on an annual basis as required by the
SEC. This report will specifically address the following activities carried out
by the Audit Committee during the year:
. The Audit Committee's review of the independence of its members.
. Confirmation of the annual review of this Charter.
. The Audit Committee's review of Spinnaker's audited financial statements
with management.
. The Audit Committee's discussion with the independent auditors of the
matters required to be communicated to audit committees.
A-7
Appendix B
SPINNAKER EXPLORATION COMPANY
2003 STOCK OPTION PLAN
TABLE OF CONTENTS
1. Purpose..................................................... B-1
2. Definitions................................................. B-1
3. Administration.............................................. B-3
(a) Authority of the Committee.............................. B-3
(b) Manner of Exercise of Committee Authority............... B-3
(c) Limitation of Liability................................. B-4
4. Stock Subject to Plan....................................... B-4
(a) Overall Number of Shares Available for Delivery......... B-4
(b) Application of Limitation to Grants of Options.......... B-4
(c) Availability of Shares Not Delivered under Options...... B-4
(d) Stock Offered........................................... B-5
5. Eligibility................................................. B-5
6. Options..................................................... B-5
(a) General................................................. B-5
(b) Terms and Conditions.................................... B-5
(c) Stand-Alone, Additional, Tandem, and Substitute Options. B-6
(d) Term of Options......................................... B-6
(e) Form and Timing of Payment under Options; Deferrals..... B-6
(f) Exemptions from Section 16(b) Liability................. B-6
(g) Non-Competition Agreement............................... B-6
7. Recapitalization or Reorganization.......................... B-6
(a) Existence of Plans and Options.......................... B-6
(b) Subdivision or Consolidation of Shares.................. B-7
(c) Recapitalizations and Corporate Changes................. B-7
(d) Additional Issuances.................................... B-8
8. General Provisions.......................................... B-8
(a) Transferability......................................... B-8
(b) Taxes................................................... B-9
(c) Changes to this Plan and Options........................ B-9
(d) Limitation on Rights Conferred under Plan............... B-9
(e) Nonexclusivity of this Plan............................. B-10
(f) Payments in the Event of Forfeitures; Fractional Shares. B-10
(g) Severability............................................ B-10
(h) Governing Law........................................... B-10
(i) Conditions to Delivery of Stock......................... B-10
(j) Plan Effective Date and Stockholder Approval............ B-11
(k) Term of Plan............................................ B-11
i
SPINNAKER EXPLORATION COMPANY
2003 STOCK OPTION PLAN
1. Purpose. The purpose of the Spinnaker Exploration Company 2003 Stock
Option Plan (the "Plan") is to provide a means through which Spinnaker
Exploration Company, a Delaware corporation (the "Company"), and its
Subsidiaries may attract and retain able persons as employees, Directors and
consultants of the Company and to provide a means whereby those persons upon
whom the responsibilities of the successful administration and management of
the Company rest, and whose present and potential contributions to the welfare
of the Company are of importance, can acquire and maintain stock ownership
thereby strengthening their concern for the welfare of the Company and their
desire to remain in its employ. A further purpose of this Plan is to provide
such employees and Directors with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, this
Plan provides for granting Incentive Stock Options, options which do not
constitute Incentive Stock Options or a combination of both, as is best suited
to the circumstances of the particular individual as provided herein.
2. Definitions. For purposes of this Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Beneficiary" means one or more persons, trusts or other entities
which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the
benefits specified under this Plan upon such Participant's death or to which
Options or other rights are transferred if and to the extent permitted under
Section 8(a) hereof. If, upon a Participant's death, there is no designated
Beneficiary or surviving designated Beneficiary, then the term Beneficiary
means the persons, trusts or other entities entitled by will or the laws of
descent and distribution to receive such benefits.
(b) "Board" means the Company's Board of Directors.
(c) "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the state of Texas are authorized or
obligated by law or executive order to close.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
(e) "Committee" means a committee of two or more Directors designated by
the Board to administer this Plan; provided, however, that, unless otherwise
determined by the Board, the Committee shall consist solely of two or more
Directors, each of whom shall be (i) a "non-employee director" within the
meaning of Rule 16b-3 under the Exchange Act, and (ii) an "outside director"
as defined under section 162(m) of the Code, unless administration of this
Plan by "outside directors" is not then required in order to qualify for tax
deductibility under section 162(m) of the Code.
(f) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law
who is serving on the Board on the Effective Date or is elected to the Board
after such date.
(g) "Effective Date" means March 24, 2003, provided the Plan is approved
by the stockholders of the Company within twelve months thereafter.
(h) "Eligible Person" means all officers and employees of the Company or
any of its Subsidiaries, and other persons who provide services to the
Company or any of its Subsidiaries, including Directors and consultants. An
employee on leave of absence may be considered as still in the employ of the
Company or a Subsidiary of the Company for purposes of eligibility for
participation in this Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and
rules thereto.
B-1
(j) "Fair Market Value" means, for a particular day:
(i) if shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities
exchange at the date of determining the Fair Market Value, then the mean
of the high and the low reported sales price, regular way, on the
composite tape of that exchange on that Business Day or, if no such sale
takes place on that Business Day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to unlisted trading privileges on that securities
exchange or, if no such closing prices are available for that day, the
last reported sales price, regular way, on the composite tape of that
exchange on the last Business Day before the date in question; or
(ii) if shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in subparagraph (i) and if
sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System as of the date of determining the Fair Market Value, then
the last reported sales price so reported on that Business Day or, if no
such sale takes place on that Business Day, the average of the high bid
and low asked prices so reported or, if no such prices are available for
that day, the last reported sales price so reported on the last Business
Day before the date in question; or
(iii) if shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in subparagraph (i)
and sales prices for shares of Stock of the same class are not reported
by the NASDAQ National Market System (or a similar system then in use)
as provided in subparagraph (ii), and if bid and asked prices for shares
of Stock of the same class in the over-the-counter market are reported
by NASDAQ (or, if not so reported, by the National Quotation Bureau
Incorporated) as of the date of determining the Fair Market Value, then
the average of the high bid and low asked prices on that Business Day
or, if no such prices are available for that day, the average of the
high bid and low asked prices on the last Business Day before the date
in question; or
(iv) if shares of Stock of the same class are not listed or admitted
to unlisted trading privileges as provided in subparagraph (i) and sales
prices or bid and asked prices therefor are not reported by NASDAQ (or
the National Quotation Bureau Incorporated) as provided in subparagraph
(ii) or subparagraph (iii) as of the date of determining the Fair Market
Value, then the value determined in good faith by the Committee, which
determination shall be conclusive for all purposes; or
(v) if shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in subparagraph (i) or sales
prices or bid and asked prices therefor are reported by NASDAQ (or the
National Quotation Bureau Incorporated) as provided in subparagraph (ii)
or subparagraph (iii) as of the date of determining the Fair Market
Value, but the volume of trading is so low that the Committee determines
in good faith that such prices are not indicative of the fair value of
the Stock, then the value determined in good faith by the Committee,
which determination shall be conclusive for all purposes notwithstanding
the provisions of subparagraphs (i), (ii) or (iii).
For purposes of valuing Incentive Stock Options, the Fair Market Value of
Stock shall be determined without regard to any restriction other than one
that, by its terms, will never lapse.
(k) "Incentive Stock Option" or "ISO" means any Option intended to be
and designated as an incentive stock option within the meaning of section
422 of the Code or any successor provision thereto.
(l) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock at a specified price during specified time periods.
(m) "Participant" means a person who has been granted an Option under
this Plan which remains outstanding, including a person who is no longer an
Eligible Person.
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(n) "Person" means any person or entity of any nature whatsoever,
specifically including an individual, a firm, a company, a corporation, a
partnership, a limited liability company, a trust or other entity; a Person,
together with that Person's Affiliates and Associates (as those terms are
defined in Rule 12b-2 under the Exchange Act), and any Persons acting as a
partnership, limited partnership, joint venture, association, syndicate or
other group (whether or not formally organized), or otherwise acting jointly
or in concert or in a coordinated or consciously parallel manner (whether or
not pursuant to any express agreement), for the purpose of acquiring,
holding, voting or disposing of securities of the Company with such Person,
shall be deemed a single "Person."
(o) "Qualified Member" means a member of the Committee who is a
"non-employee director" within the meaning of Rule 16b-3(b)(3) and an
"outside director" within the meaning of regulation 1.162-27 under section
162(m) of the Code.
(p) "Rule 16b-3" means Rule 16b-3, promulgated by the Securities and
Exchange Commission under section 16 of the Exchange Act, as from time to
time in effect and applicable to this Plan and Participants.
(q) "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as it may be
amended from time to time.
(r) "Stock" means the Company's common stock, par value $.01 per share,
and such other securities as may be substituted (or resubstituted) for Stock
pursuant to Section 7.
(s) "Subsidiary" means with respect to any Person, any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by that
Person.
3. Administration.
(a) Authority of the Committee. This Plan shall be administered by the
Committee except to the extent the Board elects, in order to comply with Rule
16b-3 or for any other reason, to administer this Plan, in which case
references herein to the "Committee" shall be deemed to include references to
the "Board." Subject to the express provisions of the Plan and Rule 16b-3, the
Committee shall have the authority, in its sole and absolute discretion, to (i)
adopt, amend, and rescind administrative and interpretive rules and regulations
relating to the Plan; (ii) determine the Eligible Persons to whom, and the time
or times at which, Options shall be granted; (iii) determine the number of
shares of Stock that shall be the subject of each Option; (iv) determine the
terms and provisions of each Option agreement (which need not be identical),
including provisions defining or otherwise relating to (A) the term and the
period or periods and extent of exercisability of the Options, (B) the effect
of termination of employment of a Participant on the Option, and (C) the effect
of approved leaves of absence (consistent with any applicable regulations of
the Internal Revenue Service); (v) accelerate the time of exercisability of any
Option that has been granted; (vi) construe the respective Option agreements
and the Plan; (vii) make determinations of the Fair Market Value of the Stock
pursuant to the Plan; (viii) delegate its duties under the Plan to such agents
as it may appoint from time to time, provided that the Committee may not
delegate its duties with respect to making Options to, or otherwise with
respect to Options granted to, Eligible Persons who are subject to section
16(b) of the Exchange Act or section 162(m) of the Code; (ix) subject to
ratification by the Board, terminate, modify, or amend the Plan; and (x) make
all other determinations, perform all other acts, and exercise all other powers
and authority necessary or advisable for administering the Plan, including the
delegation of those ministerial acts and responsibilities as the Committee
deems appropriate. Subject to Rule 16b-3 and section 162(m) of the Code, the
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, in any Option, or in any Option agreement in the
manner and to the extent it deems necessary or desirable to carry the Plan into
effect, and the Committee shall be the sole and final judge of that necessity
or desirability. The determinations of the Committee on the matters referred to
in this Section 3(a) shall be final and conclusive.
(b) Manner of Exercise of Committee Authority. At any time that a member
of the Committee is not a Qualified Member, any action of the Committee
relating to an Option granted or to be granted to a Participant
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who is then subject to section 16 of the Exchange Act in respect of the
Company, or relating to an Option intended by the Committee to qualify as
"performance-based compensation" within the meaning of section 162(m) of the
Code and the regulations thereunder, may be taken either (i) by a subcommittee
designated by the Committee, composed solely of two or more Qualified Members,
or (ii) by the Committee but with each such member who is not a Qualified
Member abstaining or recusing himself or herself from such action; provided,
however, that, upon such abstention or recusal, the Committee remains composed
solely of two or more Qualified Members. Such action, authorized by such a
subcommittee or by the Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee for purposes of
this Plan. Any action of the Committee shall be final, conclusive and binding
on all persons, including the Company, its Subsidiaries, stockholders,
Participants, Beneficiaries, and transferees under Section 8(a) hereof or other
persons claiming rights from or through a Participant. The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any
Subsidiary, or committees thereof, the authority, subject to such terms as the
Committee shall determine, to perform such functions, including administrative
functions, as the Committee may determine, to the extent that such delegation
will not result in the loss of an exemption under Rule 16b-3(d)(1) for Options
granted to Participants subject to section 16 of the Exchange Act in respect of
the Company and will not cause Options intended to qualify as
"performance-based compensation" under section 162(m) of the Code to fail to so
qualify. The Committee may appoint agents to assist it in administering this
Plan.
(c) Limitation of Liability. The Committee and each member thereof shall
be entitled to, in good faith, rely or act upon any report or other information
furnished to him or her by any officer or employee of the Company or a
Subsidiary of the Company, the Company's legal counsel, independent auditors,
consultants or any other agents assisting in the administration of this Plan.
Members of the Committee and any officer or employee of the Company or a
Subsidiary of the Company acting at the direction or on behalf of the Committee
shall not be personally liable for any action or determination taken or made in
good faith with respect to this Plan, and shall, to the fullest extent
permitted by law, be indemnified and held harmless by the Company with respect
to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
in a manner consistent with any adjustment made pursuant to Section 7, the
total number of shares of Stock reserved and available for delivery in
connection with Options under this Plan shall not exceed 1,650,000 shares of
Stock then outstanding, assuming the exercise of all outstanding Options.
Notwithstanding any provision in the Plan to the contrary, the maximum number
of shares of Stock that may be granted to any one individual during any
calendar year shall not exceed 300,000 shares of Stock (subject to adjustment
as provided in Section 7 with respect to shares of Stock subject to Options
then outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated under the Plan to
constitute "performance-based" compensation for purposes of section 162(m) of
the Code.
(b) Application of Limitation to Grants of Options. No Option may be
granted if the number of shares of Stock to be delivered in connection with
such Option exceeds the number of shares of Stock remaining available under
this Plan minus the number of shares of Stock issuable in settlement of or
relating to then-outstanding Options. The Committee may adopt reasonable
counting procedures to ensure appropriate counting, avoid double counting (as,
for example, in the case of tandem or substitute options) and make adjustments
if the number of shares of Stock actually delivered differs from the number of
shares previously counted in connection with an Option.
(c) Availability of Shares Not Delivered under Options. Shares of Stock
subject to an Option under this Plan that expire or are canceled, forfeited,
settled in cash or otherwise terminated without a delivery of shares of Stock
to the Participant, including (i) the number of shares of Stock withheld in
payment of any exercise or
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purchase price of an Option or taxes relating to Options, and (ii) the number
of shares of Stock surrendered in payment of any exercise or purchase price of
an Option or taxes relating to any Option, will again be available for Options
under this Plan, except that if any such shares of Stock could not again be
available for Options to a particular Participant under any applicable law or
regulation, such shares of Stock shall be available exclusively for Options to
Participants who are not subject to such limitation.
(d) Stock Offered. The shares of Stock to be delivered under the Plan
shall be made available from (i) authorized but unissued shares of Stock, (ii)
Stock held in the treasury of the Company, or (iii) previously issued shares of
Stock reacquired by the Company, including shares of Stock purchased on the
open market, in each situation as the Board or the Committee may determine from
time to time at its sole option.
5. Eligibility. Options may be granted under this Plan only to Eligible
Persons.
6. Options.
(a) General. Options may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Option or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(c)),
such additional terms and conditions, not inconsistent with the provisions of
this Plan, as the Committee shall determine, including terms requiring
forfeiture of Options in the event of termination of employment by the
Participant and terms permitting a Participant to make elections relating to
his or her Option. The Committee shall retain full power and discretion
(subject to Section 8(c)) to accelerate, waive or modify, at any time, any term
or condition of an Option that is not mandatory under this Plan. Except in
cases in which the Committee is authorized to require other forms of
consideration under this Plan, or to the extent other forms of consideration
must be paid to satisfy the requirements of Delaware General Corporation Law,
no consideration other than services may be required for the grant (but not the
exercise) of any Option.
(b) Terms and Conditions. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. Each Option agreement shall state the exercise
price per share of Stock (the "Exercise Price"); provided, however, that,
except in connection with certain acquisitions and/or reorganizations as
described in the Plan, the Exercise Price per share of Stock subject to an
Option shall not be less than the greater of (A) the par value per share of
Stock or (B) 105% of the Fair Market Value per share of Stock on the date of
grant of the Option or, with respect to Incentive Stock Options and in the
case of an individual who owns stock possessing more than 10% of the total
combined voting power of all classes of capital stock of the Company or its
parent or any of its Subsidiaries, 110% of the Fair Market Value per share
of the Stock on the date of grant.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on future service
requirements), the methods by which such Exercise Price may be paid or
deemed to be paid, the form of such payment, including, without limitation,
cash, Stock, other Options or awards granted under other plans of the
Company or any of its Subsidiaries, or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis), and the methods by or forms in which Stock will be delivered or
deemed to be delivered to Participants. In the case of an exercise whereby
the Exercise Price is paid with Stock, such Stock shall be valued as of the
date of exercise.
(iii) ISOs. The terms of any ISO granted under this Plan shall comply
in all respects with the provisions of section 422 of the Code. Anything in
this Plan to the contrary notwithstanding, no term of this Plan relating to
ISOs shall be interpreted, amended or altered, nor shall any discretion or
authority granted under this Plan be exercised, so as to disqualify either
this Plan or any ISO under section 422 of the Code, unless the Participant
has first requested the change that will result in such disqualification.
Notwithstanding the foregoing, the Fair Market Value of shares of Stock
subject to an ISO and the aggregate Fair Market Value of shares of stock of
any parent or subsidiary corporation (within the meaning of sections 424(e)
and
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(f) of the Code) subject to any other incentive stock option (within the
meaning of section 422 of the Code) of the Company or a parent or subsidiary
corporation (within the meaning of sections 424(e) and (f) of the Code) that
first becomes purchasable by a Participant in any calendar year may not
(with respect to that Participant) exceed $100,000, or such other amount as
may be prescribed under section 422 of the Code or applicable regulations or
rulings from time to time. As used in the previous sentence, Fair Market
Value shall be determined as of the date the Incentive Stock Option is
granted. Failure to comply with this provision shall not impair the
enforceability or exercisability of any Option, but shall cause the excess
amount of shares of Stock to be reclassified in accordance with the Code.
(c) Stand-Alone, Additional, Tandem, and Substitute Options. Subject to
Section 8(c) regarding prohibited replacement or regrant of Options, Options
granted under this Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Option or any award granted under another plan of the Company,
any of its Subsidiaries, or any business entity to be acquired by the Company
or a Subsidiary of the Company, or any other right of a Participant to receive
payment from the Company or any Subsidiary of the Company. Subject to Section
8(c) regarding prohibited replacement or regrant of Options, such additional,
tandem and substitute or exchange Options may be granted at any time. If an
Option is granted in substitution or exchange for another Option, the Committee
shall require the surrender of such other Option in consideration for the grant
of the new Option. In addition, Options may be granted in lieu of cash
compensation, including in lieu of cash amounts payable under other plans of
the Company or any of its Subsidiaries, in which the value of the cash
compensation is equivalent to 105% of the value of the Stock subject to the
Options.
(d) Term of Options. The term of each Option shall be for such period as
may be determined by the Committee; provided that in no event shall the term of
any Option exceed a period of five years.
(e) Form and Timing of Payment under Options; Deferrals. Subject to the
terms of this Plan and any applicable Option agreement, payments to be made by
the Company or a Subsidiary of the Company upon the exercise of an Option or
settlement of an Option may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Options or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. Installment or deferred payments may be required by the
Committee (subject to Section 8(c) of this Plan) or permitted at the election
of the Participant on terms and conditions established by the Committee.
Payments may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or other
amounts in respect of installment or deferred payments denominated in Stock.
Any deferral shall only be allowed as is provided in a separate deferred
compensation plan adopted by the Company. This Plan shall not constitute an
"employee benefit plan" for purposes of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.
(f) Exemptions from Section 16(b) Liability. It is the intent of the
Company that the grant of any Options to or other transaction by a Participant
who is subject to section 16 of the Exchange Act shall be exempt from section
16 pursuant to an applicable exemption (except for transactions acknowledged in
writing to be non-exempt by such Participant). Accordingly, if any provision of
this Plan or any Option agreement does not comply with the requirements of Rule
16b-3 as then applicable to any such transaction, such provision shall be
construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under section 16(b).
(g) Non-Competition Agreement. Each Participant to whom an Option is
granted under this Plan may be required to agree in writing as a condition to
the granting of such Option not to engage in conduct in competition with the
Company or any of its Subsidiaries for a period after the termination of such
Participant's employment with the Company and its Subsidiaries as determined by
the Committee.
7. Recapitalization or Reorganization.
(a) Existence of Plans and Options. The existence of this Plan and the
Options granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize
B-6
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of the
Company or any of its Subsidiaries, any issue of debt or equity securities
ahead of or affecting Stock or the rights thereof, the dissolution or
liquidation of the Company or any of its Subsidiaries or any sale, lease,
exchange or other disposition of all or any part of the assets or business of
the Company or any of its Subsidiaries or any other corporate act or proceeding.
(b) Subdivision or Consolidation of Shares. The shares of Stock with
respect to which Options may be granted are shares of Stock as presently
constituted, but if, and whenever, prior to the expiration of an Option
theretofore granted, the Company shall effect a subdivision or consolidation of
shares of Stock or the payment of a stock dividend on Stock without receipt of
consideration by the Company, the number of shares of Stock with respect to
which such Option may thereafter be exercised (i) in the event of an increase
in the number of outstanding shares of Stock shall be proportionately
increased, and the purchase price per share of Stock shall be proportionately
reduced, and (ii) in the event of a reduction in the number of outstanding
shares of Stock shall be proportionately reduced, and the purchase price per
share of Stock shall be proportionately increased. Any fractional share
resulting from such adjustment shall be rounded up to the next whole share.
(c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Stock covered by an
Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of capital stock and securities
to which the holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the holder had
been the holder of record of the number of shares of Stock then covered by such
Option. If (i) the Company merges with or into any entity or is a party to a
consolidation, (ii) the Company sells, leases or exchanges or agrees to sell,
lease or exchange all or substantially all of its assets to any other Person or
entity, (iii) the Company is to be dissolved and liquidated, (iv) any Person or
entity, including a "group" as contemplated by section 13(d)(3) of the Exchange
Act, acquires or gains ownership or control (including, without limitation,
power to vote) of more than 50% of the outstanding shares of the Company's
voting stock (based upon voting power), or (v) as a result of or in connection
with a contested election of Directors, the persons who were Directors before
such election shall cease to constitute a majority of the Board (each such
event is referred to herein as a "Corporate Change"), no later than (x) ten
days after the approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of Directors or (y) thirty days after a Corporate Change of
the type described in clause (iv), the Committee, acting in its sole discretion
without the consent or approval of any holder, shall effect one or more of the
following alternatives, which alternatives may vary among individual holders
and which may vary among Options held by any individual holder: (A) accelerate
the time at which Options then outstanding may be exercised so that such
Options may be exercised in full for a limited period of time on or before a
specified date (before or after such Corporate Change) fixed by the Committee,
after which specified date all unexercised Options and all rights of holders
thereunder shall terminate, (B) require the mandatory surrender to the Company
by selected holders of some or all of the outstanding Options held by such
holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall thereupon cancel
each such Option and pay or cause to be paid to each holder the securities or
other property (including, without limitation, cash) referred to in clause (D)
below with respect to the shares of Stock subject to such Option in exchange
for payment by such holder of the exercise price(s) under such Option for such
shares, (C) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Corporate Change (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding), or (D) provide that the number and class of
shares of Stock covered by an Option theretofore granted shall be adjusted so
that such Option shall thereafter cover the number and class of shares of stock
or other securities or property (including, without limitation, cash) to which
the holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior
to such merger, consolidation or sale of assets and dissolution, the holder had
been the holder of record of the number of shares of Stock then covered by such
Option. Notwithstanding the foregoing, if (1) the Company is involved in a
merger or consolidation and, immediately after giving effect to
B-7
such merger or consolidation, less than 50% of the total voting power of the
outstanding voting stock of the surviving or resulting entity and of the parent
company of the surviving or resulting entity, if any, is then "beneficially
owned" (within the meaning of Rule 13d-3 under the Exchange Act) in the
aggregate by the stockholders of the Company immediately prior to such merger
or consolidation or (2) any person or entity, including a "group" as
contemplated by section 13(d)(3) of the Exchange Act, acquires or gains
ownership or control (including, without limitation, power to vote) of more
than 50% of the outstanding shares of the Company's voting stock (based upon
voting power) other than as a result of a merger or consolidation in which 50%
or more of the total voting power of the outstanding voting stock of the parent
company of the surviving or resulting entity is beneficially owned in the
aggregate by the stockholders of the Company immediately prior to such merger
or consolidation, then, except as provided in any Option agreement, (I)
outstanding Options shall immediately vest and become exercisable or
satisfiable, as applicable, and (II) any such Option shall continue to be
exercisable for the remainder of the applicable Option term unless the
Committee has determined, in its sole discretion, to take the action described
in clause (A) or (B) above with respect to such Option. The provisions
contained in this Section 7(c) shall not terminate any rights of the holder to
further payments pursuant to any other agreement with the Company following a
Corporate Change.
(d) Additional Issuances. Except as hereinbefore expressly provided, the
issuance by the Company of shares of stock of any class or securities
convertible into shares of stock of any class, for cash, property, labor or
services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any case whether or
not for fair value, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of shares of Stock subject to Options
theretofore granted or the purchase price per share, if applicable.
8. General Provisions.
(a) Transferability.
(i) Permitted Transferees. The Committee may, in its discretion, permit
a Participant to transfer all or any portion of an Option, or authorize all
or a portion of such Options to be granted to an Eligible Person to be on
terms which permit transfer by such Participant; provided that, in either
case the transferee or transferees must be any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, in each
case with respect to the Participant, any Person sharing the Participant's
household (other than a tenant or employee of the Company), a trust in which
these Persons have more than 50% of the beneficial interest, a foundation in
which these Persons (or the Participant) control the management of assets,
and any other entity in which these Persons (or the Participant) own more
than 50% of the voting interests (collectively, "Permitted Transferees");
provided further that, (A) there may be no consideration for any such
transfer and (B) subsequent transfers of Options transferred as provided
above shall be prohibited except subsequent transfers back to the original
holder of the Option and transfers to other Permitted Transferees of the
original holder. Agreements evidencing Options with respect to which such
transferability is authorized at the time of grant must be approved by the
Committee, and must expressly provide for transferability in a manner
consistent with this Subsection 8(a)(i).
(ii) Qualified Domestic Relations Orders. An Option may be transferred,
to a Permitted Transferee, pursuant to a qualified domestic relations order
entered or approved by a court of competent jurisdiction upon delivery to
the Company of written notice of such transfer and a certified copy of such
order.
(iii) Other Transfers. Except as expressly permitted by Subsections
8(a)(i) and 8(a)(ii), Options shall not be transferable other than by will
or the laws of descent and distribution. Notwithstanding anything to the
contrary in this Section 8, an Incentive Stock Option shall not be
transferable other than by will or the laws of descent and distribution.
(iv) Effect of Transfer. Following the transfer of any Option as
contemplated by Subsections 8(a)(i), 8(a)(ii) and 8(a)(iii), (A) such Option
shall continue to be subject to the same terms and conditions as were
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applicable immediately prior to transfer, provided that the term
"Participant" shall be deemed to refer to the Permitted Transferee, the
recipient under a qualified domestic relations order, the estate or heirs of
a deceased Participant, or other transferee, as applicable, to the extent
appropriate to enable the Participant to exercise the transferred Option in
accordance with the terms of this Plan and applicable law and (B) the
provisions of the Option relating to exercisability hereof shall continue to
be applied with respect to the original Participant and, following the
occurrence of any such events described therein, the Option shall be
exercisable by the Permitted Transferee, the recipient under a qualified
domestic relations order, the estate or heirs of a deceased Participant, or
other transferee, as applicable, only to the extent and for the periods that
would have been applicable in the absence of the transfer.
(v) Procedures and Restrictions. Any Participant desiring to transfer
an Option as permitted under Subsections 8(a)(i), 8(a)(ii) or 8(a)(iii)
shall make application therefor in the manner and time specified by the
Committee and shall comply with such other requirements as the Committee may
require to assure compliance with all applicable securities laws. The
Committee shall not give permission for such a transfer if (A) it would give
rise to short-swing liability under section 16(b) of the Exchange Act or (B)
it may not be made in compliance with all applicable federal, state and
foreign securities laws.
(vi) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Options transferred
as permitted in this Section 8(a) is not registered pursuant to the
effective registration statement of the Company generally covering the
shares to be issued pursuant to this Plan to initial holders of Options, the
Company shall not have any obligation to register the issuance of any such
shares of Stock to any such transferee.
(b) Taxes. The Company and each of its Subsidiaries is authorized to
withhold from any Option granted, or any payment relating to an Option under
this Plan, including from a distribution of Stock, amounts of withholding and
other taxes due or potentially payable in connection with any transaction
involving an Option, and to take such other action as the Committee may deem
advisable to enable the Company and Participants to satisfy obligations for the
payment of withholding taxes and other tax obligations relating to any Option.
This authority shall include authority to withhold or receive Stock or other
property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(c) Changes to this Plan and Options. The Board may amend, alter, suspend,
discontinue or terminate this Plan or the Committee's authority to grant
Options under this Plan without the consent of stockholders or Participants,
except that any amendment or alteration to this Plan, including any increase in
any share limitation, shall be subject to the approval of the Company's
stockholders not later than the annual meeting next following such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to this Plan to
stockholders for approval; provided that, without the consent of an affected
Participant, no such Board action may materially and adversely affect the
rights of such Participant under any previously granted and outstanding Option.
The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Option theretofore granted and any Option
agreement relating thereto, except as otherwise provided in this Plan; provided
that, without the consent of an affected Participant, no such Committee action
may materially and adversely affect the rights of such Participant under such
Option; and, provided further, that no Option may be repriced, replaced,
regranted through cancellation, or modified without shareholder approval
(except in connection with a change in the Company's capitalization), if the
effect would be to reduce the exercise price for the shares underlying such
Option.
(d) Limitation on Rights Conferred under Plan. Neither this Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in
the employ or service of the Company or a Subsidiary of the Company, (ii)
interfering in any way with the right of the Company or a Subsidiary to
terminate any Eligible Person's or Participant's employment or service
B-9
at any time, (iii) giving an Eligible Person or Participant any claim to be
granted any Option under this Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a Participant any of the
rights of a stockholder of the Company unless and until the Participant is duly
issued or transferred shares of Stock in accordance with the terms of an Option
agreement.
(e) Nonexclusivity of this Plan. Neither the adoption of this Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements as it may deem
desirable, including incentive arrangements and awards which do not qualify
under section 162(m) of the Code. Nothing contained in this Plan shall be
construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by the Company or such Subsidiary to be appropriate or
in its best interest, whether or not such action would have an adverse effect
on this Plan or any Option agreement made under this Plan. No employee,
Beneficiary or other person shall have any claim against the Company or any
Subsidiary as a result of any such action.
(f) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Option with respect to which a Participant paid cash or other consideration to
the Company in exchange for such Option, the Participant shall be repaid the
amount of such cash or other consideration. No fractional shares of Stock shall
be issued or delivered pursuant to this Plan or any Option. The Committee shall
determine whether cash, other Options or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(g) Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein. If any of the terms or provisions of this Plan
or any Option agreement conflict with the requirements of Rule 16b-3 (as those
terms or provisions are applied to Eligible Persons who are subject to section
16(b) of the Exchange Act) or section 422 of the Code (with respect to
Incentive Stock Options), then those conflicting terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of Rule
16b-3 (unless the Board or the Committee, as appropriate, has expressly
determined that the Plan or such Option should not comply with Rule 16b-3) or
section 422 of the Code. With respect to Incentive Stock Options, if this Plan
does not contain any provision required to be included herein under section 422
of the Code, that provision shall be deemed to be incorporated herein with the
same force and effect as if that provision had been set out at length herein;
provided, further, that, to the extent any Option that is intended to qualify
as an Incentive Stock Option cannot so qualify, that Option (to that extent)
shall be deemed an Option not subject to section 422 of the Code for all
purposes of the Plan.
(h) Governing Law. All questions arising with respect to the provisions of
the Plan and Options shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law. The
obligation of the Company to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
(i) Conditions to Delivery of Stock. Nothing herein or in any Option
granted hereunder or any Option agreement shall require the Company to issue
any shares with respect to any Option if that issuance would, in the opinion of
counsel for the Company, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option, the
Company may, as a condition precedent to the exercise of such Option, require
from the Participant (or in the event of his death, his legal representatives,
heirs, legatees, or distributees) such written representations, if any,
concerning the holder's
B-10
intentions with regard to the retention or disposition of the shares of Stock
being acquired pursuant to the Option and such written covenants and
agreements, if any, as to the manner of disposal of such shares of Stock as, in
the opinion of counsel to the Company, may be necessary to ensure that any
disposition by that holder (or in the event of the holder's death, his legal
representatives, heirs, legatees, or distributees) will not involve a violation
of the Securities Act or any similar or superseding statute or statutes, any
other applicable state or federal statute or regulation, or any rule of any
applicable securities exchange or securities association, as then in effect. No
Option shall be exercisable with respect to a Participant unless and until the
holder thereof shall have paid cash or property to, or performed services for,
the Company or any of its Subsidiaries that the Committee believes is equal to
or greater in value than the par value of the Stock subject to such Option.
(j) Plan Effective Date and Stockholder Approval. This Plan has been
adopted by the Board effective March 24, 2003, subject to approval by the
stockholders of the Company.
(k) Term of Plan. No Options may be granted under the Plan after five
years from the Effective Date. The Plan shall remain in effect until all
Options granted under the Plan expire or are exercised or forfeited.
B-11
Proxy -- Spinnaker Exploration Company
Proxy for Annual Meeting of Stockholders - May 6, 2003
This Proxy is Solicited on Behalf of the Spinnaker Exploration Company Board of
Directors
The undersigned hereby appoints Roger L. Jarvis, Robert M. Snell and Jeffrey C.
Zaruba, and each of them, proxies for the undersigned with full power of
substitution, to vote all shares of Spinnaker Exploration Company Common Stock
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Spinnaker Exploration Company to be held in Houston, Texas, on
Tuesday, May 6, 2003 at 9:00 a.m., or at any adjournment thereof, upon the
matters set forth on the reverse side and described in the accompanying Proxy
Statement and upon such other business as may properly come before the meeting
or any adjournment thereof.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF DIRECTORS NAMED ON THE REVERSE SIDE (PROPOSAL 1), "FOR"
PROPOSAL 2 AND "FOR" PROPOSAL 3.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
Spinnaker Exploration Company
Annual Meeting Proxy Card
A Election of Directors
1. The Board of Directors recommends a vote "FOR" the listed nominees.
For Withhold
01 - Roger L. Jarvis __ __
02 - Howard H. Newman __ __
03 - Jeffrey A. Harris __ __
04 - Michael E. McMahon __ __
05 - Sheldon R. Erikson __ __
06 - Michael G. Morris __ __
07 - Michael E. Wiley __ __
B Issues
The Board of Directors recommends a vote "FOR" the following items.
For Against Abstain
2. TO APPROVE THE SPINNAKER EXPLORATION COMPANY 2003 STOCK
OPTION PLAN __ __ __
3. TO RATIFY SELECTION OF INDEPENDENT AUDITORS __ __ __
================================================================================================
C. Authorized Signatures - Sign Here - This section must be completed for your instructions
to be executed.
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
Signature 1 - Please keep signature within the box _____________________________________________
Signature 2 - Please keep signature within the box _____________________________________________
Date (mm/dd/yyyy)_____/____/________